How to create an innovation strategy from scratch

Mak­ing the deci­sion to inno­vate is not a sim­ple one. If a busi­ness is flour­ish­ing, divert­ing mon­ey and resources away from an approach that is work­ing can feel like mad­ness. Sim­i­lar­ly, if a busi­ness is strug­gling, focus­ing on any­thing beyond the turn­around can feel like a lux­u­ry. How­ev­er, with busi­ness­es and the econ­o­my still reel­ing from the dual impacts of Brex­it and the pan­dem­ic, inno­va­tion is becom­ing ever more nec­es­sary.

“Every busi­ness needs an inno­va­tion strat­e­gy, not just to be suc­cess­ful but to sur­vive because the world around us is con­stant­ly chang­ing,” says Dr Jo North, founder of inno­va­tion con­sul­tan­cy The Big Bang Part­ner­ship, which has worked with organ­i­sa­tions such as Trans­port for Lon­don, Avi­va and the Uni­ver­si­ty of York.

“What I mean by an ‘inno­va­tion strat­e­gy’ is hav­ing a plan to grow your busi­ness through doing things dif­fer­ent­ly.” 

This might sound straight­for­ward, but for com­pa­nies where inno­va­tion is not part of busi­ness as usu­al, it can require an over­haul of mind­set, com­pa­ny val­ues and cul­ture. So, how do you know if an inno­va­tion strat­e­gy will help?

• Does your com­pa­ny real­ly need an inno­va­tion strat­e­gy?
• How do you cre­ate an inno­va­tion strat­e­gy? 
  • Be con­sumer-cen­tric
  • Start ‘hori­zon scan­ning’
  • Talk to peo­ple out­side the busi­ness
  • Cre­ate slack
  • Make bet­ter use of your IT team
  • Con­sid­er an incu­ba­tor
• What chal­lenges can you expect to face when inno­vat­ing?
  • Get­ting com­fort­able with risk
  • Man­ag­ing cash flow and find­ing fund­ing
  • Cul­ture and com­mu­ni­ca­tion are cru­cial

Does your company really need an innovation strategy?

The short answer is yes. David Newns is one of the youngest exec­u­tives list­ed on the FTSE and has more than 800 patents to his name. Giv­en his expe­ri­ence, he knows all too well the dif­fi­cul­ty busi­ness­es face in bal­anc­ing what needs to be done imme­di­ate­ly with the desire to inno­vate

“Inno­va­tion isn’t some­thing you can sim­ply put on your list of pri­or­i­ties, because it isn’t tan­gi­ble — you don’t know when it’s going to be done,” he says. “Unless you’ve got a real­ly clear strat­e­gy and a group of peo­ple that are ded­i­cat­ed to think­ing about inno­va­tion, it will stay at the bot­tom of the list. If you don’t pur­pose­ful­ly com­mit to cre­at­ing a frame­work and a strat­e­gy to do it prop­er­ly, then you may as well not do it at all.”

Jes­si­ca Nord­lan­der, an ex-Googler and now COO of soft­ware com­pa­ny Though­tEx­change, agrees. Vot­ed Sweden’s most inno­v­a­tive leader in 2019 by Ledar­na, a trade union for lead­ers and man­agers, Nordlander’s approach to lead­ing a busi­ness relies “heav­i­ly on a frame­work that is based on exploita­tion and explo­ration”. This means busi­ness activ­i­ties are split between exploit­ing an organisation’s exist­ing capa­bil­i­ties, knowl­edge and resources, and explor­ing new and dif­fer­ent ways of work­ing. 

“It’s always help­ful to have that frame­work in mind,” she says, “because this effi­cien­cy bias exists in most com­pa­nies — they are con­stant­ly drawn to the activ­i­ties that improve their growth or bot­tom line right now”.

Of course this is impor­tant, she says. But she argues that every com­pa­ny needs to invest in their future via­bil­i­ty or they will strug­gle longer term, and that the old adage ‘if you fail to plan, you plan to fail, holds true.

“Peo­ple ask, ‘Why should I cre­ate a plan?” says North. “What’s the point of plan­ning when everything’s chang­ing?’ Well, you need to know your end des­ti­na­tion and then, like a satel­lite, you can always change your route, but hav­ing a plan to begin with is absolute­ly key.”

How do you create an innovation strategy? 

Be consumer-centric 

The hard­est part of becom­ing more inno­v­a­tive is get­ting start­ed. As North sug­gests, work­ing out the end des­ti­na­tion can be a help­ful first step. All inno­va­tions should begin with the peo­ple who will use them: the cus­tomers. 

“Con­sumer-cen­tric­i­ty needs to be the first point,” says Newns. “Lots of com­pa­nies are try­ing to get to that place but don’t know how to start. If you put the cus­tomer at the heart of what you’re try­ing to do and think about how to serve them bet­ter, you real­ly start open­ing up oppor­tu­ni­ties.” 

North agrees. “We’re all in busi­ness to solve a customer’s prob­lem some­where. If the world changes, our cus­tomers’ prob­lems change and we need to make sure our busi­ness­es evolve and adapt to that.”

Start ‘horizon scanning’

To keep up with this ever-shift­ing busi­ness land­scape, North rec­om­mends ‘hori­zon scan­ning’ as the sec­ond step in craft­ing an inno­va­tion strat­e­gy. This involves, in essence, under­tak­ing com­pre­hen­sive mar­ket research and talk­ing to cus­tomers.

“It’s about see­ing what’s going on in the world — the shifts in how peo­ple are behav­ing and what they are con­sum­ing,” she says. “Look for things that aren’t just ‘in-the-moment’ trends but are real, direc­tion­al changes you need to be aware of, such as new tech­nolo­gies or cli­mate change.” 

Some of this infor­ma­tion can be gath­ered by hav­ing real con­ver­sa­tions with cus­tomers about issues beyond their next order. It requires com­pa­nies to ask what else con­sumers need from them and, more impor­tant­ly, what they go to com­peti­tors for.

“Look for those sig­nals of an indus­try, a sec­tor or a space that is com­pla­cent or where cus­tomers are dis­sat­is­fied. Then look at what you can do to make it bet­ter,” she adds.

These trends may feel dif­fi­cult to find, but the sig­nals can come from any­where and hit­ting on them could be as sim­ple as read­ing the news or speak­ing to peo­ple more reg­u­lar­ly. The impor­tant thing is to be on the look­out for the glob­al trends shap­ing the way we live, advis­es North.

Oth­er resources she rec­om­mends include Mintel for con­sumer research, Gartner’s tech­nol­o­gy Hype Cycles, Sta­tista and even free tools such as Google Trends, which can help busi­ness­es under­stand what peo­ple are actu­al­ly search­ing for online. 

Talk to people outside the business 

For Newns, who has not only head­ed up his own com­pa­ny but has also sat on the exec­u­tive boards of dif­fer­ent firms, the strat­e­gy should include col­lab­o­rat­ing with — and learn­ing from — oth­er busi­ness­es. 

“I’m a mas­sive sup­port­er of the idea that if you are the CEO of a com­pa­ny you should spend at least 25% of your time not in the com­pa­ny. You need to leave your bub­ble and spend time out­side your organ­i­sa­tion,” he says.

He believes that larg­er com­pa­nies often strug­gle to inno­vate because they are entrenched in their own ways of oper­at­ing. Col­lab­o­rat­ing with more inno­v­a­tive busi­ness peo­ple — such as entre­pre­neurs — can cre­ate oppor­tu­ni­ties for both sides. 

“Why shouldn’t CEOs be men­tor­ing entre­pre­neurs?” asks Newns. “Big com­pa­nies are fas­ci­nat­ed by entre­pre­neurs, who some­times earn more mon­ey than their exec­u­tives do. And entre­pre­neurs also think ‘gosh, imag­ine what you could do with the resources that big com­pa­nies have!’ 

“There’s cur­rent­ly no place for these two crea­tures to have that con­ver­sa­tion. If they did, I think they’d be inspired by each oth­er to do real­ly inter­est­ing, dis­rup­tive things.”

Create slack 

Hav­ing been inspired by research and exter­nal col­lab­o­ra­tion, thought must be turned to how the inno­va­tion strat­e­gy will oper­ate inter­nal­ly. The first thing to do, says Nord­lan­der, is cre­ate slack in the busi­ness. 

“Make sure you have a lit­tle bit too much, in terms of the resources you need, and you will be able to use those excess resources to pro­duce some­thing above and beyond the min­i­mum require­ment for a role,” she says.

She uses the exam­ple of a front-end devel­op­er who is giv­en access to back-end tools, in spite of the fact they do not need them for their day job. “All of a sud­den, hav­ing access to more than some­one needs will increase the chances of being cre­ative and mak­ing progress on more explo­rative projects that aren’t real­ly a part of their day-to-day life.”

But more than just free­ing up resources, cre­at­ing slack means tru­ly embrac­ing the mind­set nec­es­sary for an inno­va­tion strat­e­gy to work. For many com­pa­nies, giv­ing every­one more com­put­er pow­er than they need might seem waste­ful and inef­fi­cient. Again, how­ev­er, Nordlander’s ‘exploita­tion ver­sus explo­ration’ frame­work helps to shift the focus from short-term to long-term gains. 

“Explo­ration is built on giv­ing peo­ple a lit­tle bit more of every­thing to unleash their cre­ativ­i­ty,” she says. For, with­out cre­ativ­i­ty, there can be no real inno­va­tion.

Make better use of your IT team

It’s not just phys­i­cal resources a busi­ness needs to think dif­fer­ent­ly about when craft­ing an inno­va­tion strat­e­gy, but human resources too. 

Nord­lan­der received her most inno­v­a­tive leader acco­lade while work­ing at edu­ca­tion com­pa­ny STS. A large part of her suc­cess was down to an over­haul of both how employ­ees saw their in-house tech team and how they col­lab­o­rat­ed with each oth­er.

“When I joined, IT was seen as a cost cen­tre, not as a group of peo­ple that could help the com­pa­ny devel­op or inno­vate,” she recalls. The depart­ment was sim­ply where employ­ees went to check hard­ware in and out, rather than a source of tech­ni­cal exper­tise and sup­port. What Nord­lan­der decid­ed to do was iden­ti­fy every role in the busi­ness that had any­thing to do with tech­nol­o­gy and start to encour­age cross-col­lab­o­ra­tion.

“What we were able to do was con­nect these enti­ties in a dif­fer­ent way to start cre­at­ing syn­er­gies between people’s skills and knowl­edge bases. It com­plete­ly changed how peo­ple with a lot of tech­ni­cal com­pe­tence con­tributed to the busi­ness and allowed them to use skills they had in ways that had nev­er been done before.” 

This is par­tic­u­lar­ly impor­tant for com­pa­nies look­ing to inno­vate dig­i­tal­ly, says Nord­lan­der. Her advice: stop see­ing IT as a low-lev­el sup­port func­tion and start empow­er­ing tech-savvy employ­ees to work togeth­er and get cre­ative. That way a busi­ness might be able to unlock ideas it nev­er thought pos­si­ble.

Consider an incubator

When it comes to over­haul­ing the way a busi­ness oper­ates, some­times it makes sense to have a small­er, tri­al run first. This is where an incu­ba­tor comes in. 

The incu­ba­tor method of inno­va­tion means hav­ing a select group of peo­ple with­in an organ­i­sa­tion whose entire pur­pose is to devise inno­v­a­tive prod­ucts, ser­vices or ways of work­ing and to test them before they are rolled out more wide­ly. 

The pros of an incu­ba­tor are clear. It’s a safe space to inno­vate, test and fail with­out the fear of dis­rupt­ing wider busi­ness oper­a­tions. But there are cons too. Keep­ing inno­va­tion sep­a­rate from the main busi­ness runs the risk that it won’t be ful­ly embraced by the rest of the com­pa­ny.

The best way to address this, says Newns, is to ensure the right mix of exist­ing and new employ­ees. “If your incu­ba­tor is made up of a whol­ly new team, the main busi­ness tends to reject them. If you go for a 50/50 split, it’s like The Hunger Games, with every­one argu­ing. I find the best bal­ance is when the team is a third new peo­ple. It brings enough of a new view to change the con­ver­sa­tion, with­out peo­ple feel­ing vul­ner­a­ble or defen­sive.” 

What challenges can you expect to face when innovating?

As with any project, from home ren­o­va­tion to soft­ware devel­op­ment, when devel­op­ing an inno­va­tion strat­e­gy it is cru­cial to fac­tor in the poten­tial chal­lenges and account for them.

Getting comfortable with risk 

“Risk is inher­ent in inno­va­tion,” says North. “But not inno­vat­ing is also risky.” This can seem paralysing for busi­ness­es. To be the first in an indus­try to do some­thing or to be the cre­ator of some­thing new requires a com­pa­ny to stick its head above the para­pet, but it is pos­si­ble to mit­i­gate that risk. 

North’s advice? “You can off­set that risk by test­ing and being real­ly cus­tomer-focused.” 

As men­tioned above, by under­stand­ing cus­tomers, organ­i­sa­tions can cre­ate some­thing that holds real val­ue. Ensur­ing each inno­va­tion is relat­ed to a clear cus­tomer need or pain point mit­i­gates the risk of no one real­ly want­i­ng the final prod­uct.

It also helps to keep goals bite-sized and achiev­able — to begin with. North rec­om­mends adopt­ing a fail-fast, test-often approach. “It’s about hav­ing an idea, test­ing it as quick­ly and effec­tive­ly as you can with­out spend­ing too much time or mon­ey, get­ting some feed­back and going again.”

Managing cash flow and finding funding

Anoth­er ever-present chal­lenge is mon­ey. “Assume inno­va­tion is going to take longer and you’re going to spend more than you orig­i­nal­ly thought on it,” advis­es North. This is exact­ly why an inno­va­tion strat­e­gy is so cru­cial, she says. Map­ping out costs and cash flow issues from the start will help give a clear­er pic­ture of what is pos­si­ble with­in a giv­en time frame.

But this should not be an excuse to avoid inno­vat­ing alto­geth­er. Com­pa­nies need to start spend­ing mon­ey to ensure future via­bil­i­ty. Man­ag­ing cur­rent cash flow well but invest­ing noth­ing in inno­va­tion is a com­mon mis­take. Nord­lan­der com­pares it with set­ting mon­ey aside for a pen­sion. 

“Retire­ment sav­ings are a sim­i­lar trade-off,” she says. “Do I want to have some resources in the future or do I want to com­pro­mise the qual­i­ty of my cur­rent life by putting away some of the very lit­tle I have?” 

But com­pa­nies that are seri­ous about their future via­bil­i­ty need to make this a pri­or­i­ty and com­mit to set­ting mon­ey aside for inno­va­tion. 

Exter­nal fund­ing, too, can be a valu­able path to inno­va­tion. “Ven­ture cap­i­tal is real­ly what has made it pos­si­ble for com­pa­nies — such as the big tech firms — to be incred­i­bly unprof­itable in the short term,” says Nord­lan­der. Fund­ing allows organ­i­sa­tions to focus on the explo­rative activ­i­ties required for inno­va­tion, rather than sim­ply the exploita­tive ones. 

Hav­ing a ful­ly devel­oped inno­va­tion strat­e­gy is also help­ful when it comes to secur­ing fund­ing, says North. “There is always fund­ing for a great idea, as long as you can show it deliv­ers val­ue to cus­tomers.” 

The final thing to under­stand about fund­ing is that the soon­er it is pur­sued, the bet­ter. As the world changes and new tech­nolo­gies and trends impact the pot of mon­ey avail­able, organ­i­sa­tions may find that the help avail­able to them starts to dwin­dle. 

Newns uses the exam­ple of oil and gas com­pa­nies and the emer­gence of envi­ron­men­tal, social and cor­po­rate gov­er­nance (ESG) funds. He explains how ‘bad’ indus­tries that might look to pur­sue green inno­va­tions now find them­selves with less cap­i­tal to invest in these projects as their stocks are sold down and divert­ed into clean­er, green­er funds. 

By fail­ing to inno­vate, such busi­ness­es have found their share price plum­met­ing with less mon­ey to invest in the very inno­va­tions that could get them back on track. “So, the mes­sage is: do it ear­ly, don’t wait,” he sum­maris­es.  

Culture and communication are crucial

As with any major organ­i­sa­tion­al under­tak­ing: peo­ple are key. Fun­da­men­tal­ly chang­ing the way an organ­i­sa­tion oper­ates can cre­ate uncer­tain­ty among a work­force and any move­ment towards a new way of doing things is bound to make those who excelled in the old way uncom­fort­able. 

The way to get them on board is to get them excit­ed about inno­va­tion, says North. “It comes down to the con­cept of val­ue,” she says. That val­ue can be the inher­ent use­ful­ness of the inno­va­tion, how well it chimes with staff’s per­son­al val­ues and ethics or its finan­cial val­ue — is this inno­va­tion worth the time, mon­ey and effort being put into it? “It’s about mak­ing an emo­tion­al con­nec­tion with your inno­va­tion so that peo­ple care enough to want to get behind it.”

If that con­cept of val­ue is still too intan­gi­ble, Nord­lan­der believes there is one sure­fire way to get peo­ple on board: give them a stake in the organ­i­sa­tion. “If you’re not will­ing to have peo­ple share in the long-term suc­cess of the com­pa­ny through, for exam­ple, own­er­ship, you need to accept that some peo­ple are going to have a hard time feel­ing it’s worth it if you don’t incen­tivise them.” 

To ensure that engage­ment remains high as a busi­ness imple­ments its inno­va­tion strat­e­gy, keep employ­ees in the loop. “The key thing,” says Newns, “is to cre­ate that com­mu­ni­ca­tion cycle in the organ­i­sa­tion ear­ly.” If using the incu­ba­tor mod­el of inno­va­tion, be sure to show­case what it is doing reg­u­lar­ly so work­ers feel like they know what’s going on and can get excit­ed about progress.

“A very prac­ti­cal thing we can do is…actually do stuff,” says North. “Not just talk inno­va­tion all the time and not be plan­ning inno­va­tion all the time, but look for those quick wins. Look at where you can put some­thing — prefer­ably some­thing tan­gi­ble — out there and say ‘Look, here is some­thing we are doing to move towards inno­va­tion’.”

Ulti­mate­ly, the suc­cess of any inno­va­tion strat­e­gy lies in devel­op­ing the right com­pa­ny cul­ture and encour­ag­ing employ­ees to think and work in new ways. It may be wrought with chal­lenges, but hav­ing the right plan in place can help an organ­i­sa­tion nav­i­gate many of the com­mon pit­falls and set itself up for long-term growth.

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