Corporate Innovation Strategy

The goals of the Corporate Innovation are in two main directions – incremental and transformational. On the incremental side, the corporations are doing pretty well. They keep improving their products to stay relevant to their customers’ needs and keep the operational costs low. This process of incremental improvements goes on and on until it reaches the point where the product needs to be fundamentally redesigned because its core technology or business model had become obsolete.

The second goal is to transform the company for the future. It needs to address new markets, new core technologies, and new business models.
This goal – the reinvention of the core of a company is where the Corporate Innovation generally fails.

There is no lack of innovation centers all over the world. Nor a shortage of blockchain, AI, and chatbots experiments. What is lacking is an outcome that actually reinvents the position of a company in the new digital world.

One of the reasons for this sad result is the lack of an innovation strategy. Companies try random technologies, build products no one needs, and try to reach new markets without a defendable position in them. No wonder that most of the innovation projects fail to scale after an initial positive result.
In this post, I will go over five steps that can help you develop your innovation strategy. I will also highlight some of the pitfalls in which the corporate innovators fall.

Identity and Purpose

This is about who you are as a company. What is your purpose and values?
Who do you serve? What is your position in the ecosystem?

Why is it important?  
You will not know how far you’ve reached if you don’t know where you started and who you are.
A company exists in order to fulfill the needs of its stakeholders – owners, employees, community, etc. But it exists because its customers are paying for its products. Having clarity about the corporate purpose and priority should bring the focus on the customers and will narrow the exploration space that it actually wants to pursue.

How to fail it?
Looking at the products and corporate interests as an end goal, forgetting about the customer. If you still remember Kodak, they though they are in the chemicals and paper business and not in the keeping customers’ memories business.
Lacking focus and priorities – trying to serve everyone without dedicated attention to specific segment need.

How to do it better?
Validate your identity and purpose with the stakeholders – shareholders, employees, community. Reevaluate your customers. Why they chose you? What need you solve for them?
What is your position in the ecosystem? What value do you bring? What assets, skills, or regulations are keeping you in business? Are you still adding value or just collect rent from assets you’ve acquired long ago?
Focus on activities that support your purpose.

Awareness and understanding of the change

Your environment is changing. The requirements of your customers are changing. The regulations are changing. The technology you are using is changing or being replaced.

Why is it important?
Change brings uncertainty. Uncertainty brings opportunities and risks. You have to be aware of the changing environment in order to grasp the opportunities and mitigate the risks.

How to fail it?
Focusing only on the existing ecosystem and the customers that are loyal to you. Looking only at the current competition and not the alternatives. If your customers are moving to alternative solutions, your whole industry might be getting disrupted. And the fact that your competitors are not moving fast enough is of little consolation.
Assuming that the assets that protect your position now will be also important in the changing world.

How to do it better?
Keep your finger on the pulse of the environment. Who is driving the change? Is it competitors or alternatives? What underlying factors are changing?
How does it affect your position and the thing that keeps you in business? What could make your advantage disappear? What opportunities could it bring? Understand your customers. How their requirements changed and why? Who did they choose over you?
Are you being disrupted, or you want to disrupt another business? What are the strengths of the disrupter? How can they scale their advantage and take a bigger share of your market?

Conquering Strategy

Now that you have clarity about your position and the changing environment it is time to prepare your response.

Why is it important?
You are part of your current ecosystem and you are an important player there. You control assets that nobody can buy, borrow or develop. These assets are not always technology related or visible to the customers. For example, the telecom business is mostly protected by the licensed radio spectrum and the cost of the underlying infrastructure. Amazon protects its business from the other e-commerce sites partially because they developed an expensive network of high-tech warehouses. Other companies use patents, know how or speed to protect their position.
If you want to jump into a new business, you will find yourself in a new ecosystem. The walls that protected you so far will not be helping anymore. You have to develop a strategy to conquer this new ecosystem. You have to buy or build new walls and you have to build them on a stable foundation, so you become irreplaceable in the new supply chain.

How to fail it?
Copying what everyone else is doing. This will make your product commodity and your position replaceable.
Focusing on technological and operational development and forgetting about building strategic barriers.
Picking easy opportunities. If it is easy and cheap for you it will be easy and cheap for everybody else.

How to do it better?
Prepare a strategy to win, not just to participate.
In the previous step, you tried to understand the underlying driving forces. Now using these forces, you can build scenarios for different futures. Immerse in each scenario and write down a plan to win.
Think about what will be scarce and what will be abundant in each future? Can you get the scarce assets now? Can you build upon your existing strengths? How will your customers perceive value? What will they appreciate? Who will be your early adopters? Understand the new business model end-to-end. Who will be there and why?
Apply some game theory: What would your competitors do? Can you make them pick the wrong asset? What information can you get that the others don’t have? Building the scenarios from the fundamental driving forces will give you the advantage to read weak signals from the environment. And when you read weak signals you have time to prepare.

But don’t forget that these are only assumptions. When you are looking to the future, your answers are (at best) educated guesses (or hypotheses). You have to validate these hypotheses in the next step.

Targeted exploration.

At this point, you should know who you are, how the environment is changing, and what are your options to respond.
Now it is time to explore in the directions that you established in the previous steps.

The goals of the targeted exploration are:

  • Finding operational solutions for the new business model.
  • Finding and locking strategic assets – acquiring and building assets that will defend your position.
  • Validating the assumptions about the changing environment. If the reality does not follow your scenarios, you have to re-evaluate the scenarios and update your strategy.
  • Adding options to explore and pick later.

Having clear targets for the Corporate Innovation initiatives will help you put the right metrics in place. Linking these initiatives to the strategic corporate goals will help you prioritize them.

For this stage, it is extremely important to select the right people for the job. You want open-minded people, questioning the status quo and trying new ways to deliver value for your customers.

Scaling Up

The good foundations from the previous steps will give you a stronghold from which you can expand your business. You have to be aware that the protective walls have limits on their reach and an expiration date. Don’t stretch too far from your protected zone and don’t rely on assets pass their expiration date.
Your business longevity depends on your skills to constantly identify and acquire new strategic advantages and retire the obsolete ones.

Stefan Petzov

Stefan Petzov is an innovation manager leading the Technology and Innovation function in the Swisscom Outpost in Silicon Valley. Stefan Petzov has a long experience in agile product development of cloud-native enterprise solutions.

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