STRATEGY MAKING SURE AS HECK BETTER BE INNOVATIVE

By definition, strategy is about allocating resources today to secure a better tomorrow. It is important, however, to understand the nuances and complexities of innovation as they relate to strategy. Here is my list of the four most important:

Not every industry is equally dynamic. Some industries are faster paced than others. The smart phone industry has gone through several disruptive changes in just a decade, whereas the steel industrys technology shifts took place over a hundred-year period. Managerial best practices in a fast-paced industry dont necessarily apply to everyone, everywhere.

Not all innovation is created equal. I put all innovations into two broad categories: linear innovations (which are consistent with the firms current business model) and non-linear innovations (not perfectly continuous with the current business model). But we need to add another layer of complexity to those categories: innovations can be incremental or radical. To illustrate, consider the Tuck School of Business, my employer. A linear, incremental innovation would be if professors from different disciplines co-taught a course. A radical (but still linear) innovation would be a major overhaul of the two-year MBA curriculum. If we were to fundamentally change our business model by offering an online MBA, that would be non-linear. Not only is there no well-understood process for creating such a program, but doing so would require Tuck to build an entirely new set of capabilities.

Execution is essential to successful innovation and strategy. Innovation is about commercializing creativity. If a firm is not making money with an idea, there is no innovation. The real challenge lies in the long, frustrating journey toward converting an idea into a fully scaled up profitable business. Moreover, this isnt always about coming up with new products and services. We tend to think of a shiny new product offering when we picture strategic innovation, but thats too limited. Apple has disrupted several industries using new business models, not new technologies. And Toyota changed the auto industry forever with a systemic process innovation (the lean production system).

Finally, innovation (and hence strategy) is not just the CEOs job. There are two significant problems if the firms leader is the only one worried about strategy. First, strategy is about adapting to change - and the people at the bottom of the organization are closer to customers and the competitive environment than the CEO. Second, the company needs to selectively forget the past as it invents the future. The CEO will have the most difficulty in forgetting, especially if the CEO was responsible for creating the status quo. The people at the bottom of the organization not only are closest to the future but they have the least vested in the firms history.