- Posted by Dan Toma
- On 28/09/2020
An inclusive and consensual approach to developing bold innovation strategies is needed. Why, you ask? Historically speaking, strategy formulation was an activity reserved for a select group of individuals in an organisation or external consultants.
Starting in the 80’s the strategy development process was professionalised as it evolved from the chief executive’s domain into a core corporate function. Promoting the creation of new roles such as the head of strategy, strategic-planning director, and in recent years, the Chief Strategy Officer (CSO).
However, with changing times, we need to recognise this outdated, top-down, exclusive and opaque process is due a redesign.
Why? Firstly, because the volatile, uncertain, complex and ambiguous environment companies operate in today is utterly incompatible with what, traditionally, this has been one of the primary responsibilities of the strategy office; developing the annual strategic plan. There are way too many moving parts in today’s business environment to hope that a small group of highly specialised people can fully comprehend the cause-and-effect and contributing factors at play across the business environment.
Therefore, the smaller the group, the narrower the view and the higher the chance the strategy will miss out important aspects which might cause it to run aground in the deployment phase or worse, steer an organisation out of alignment with its customers. While nothing new, the narrower the group, the higher the chances for the ‘Not Invented Here Syndrome’ to appear when deploying the strategy – in turn leading to said strategy not yielding expected results.
Secondly, the weaknesses of traditional strategic planning – characterised by a lockstep march toward a series of deliverables according to a linear and rigid annual calendar – have been amplified by the importance of adaptability in a rapidly changing world.
With the pursuit of innovation and building a culture of innovation now firmly seated as a top three and even number one strategic imperative, the need to have a robust strategy for innovation is clear. But, not understanding how to approach this, many organisations are trying to develop innovation strategies using the same approach as for core business strategy and that simply won’t work. A classic case of using the wrong tool for the job is accentuated when you consider the number of baked-in assumptions versus the pace of change in the external environment.
But just opening the doors and allowing more people to take part in the process is not the solution. When people are simply added in at random, the resulting strategy is likely to be even more disappointing than if the additional people didn’t contribute at all. The key is the adoption of a new, more contemporary, two-fold approach. Firstly, it requires a mindset shift from a fixed mindset to a growth mindset. And secondly, a complete process overhaul.
This article is based on experience with blue-chip companies in industries as diverse as pharma, banking and maritime and our work helping them create more actionable and consensual innovation strategies. The article outlines the critical elements of an innovation strategy development process that mitigates the issues mentioned above while at the same time capitalising on the collective knowledge, experience and diversity present in the majority of global companies.
Breaking the old habits of strategy formulation needs to start with diversity and representation. Therefore putting together a list of people who will be involved in the process is a crucial part of the new process. From our experience, the key here is to make sure the list is diverse enough (cognitive, gender, background, hierarchical, functional) otherwise, the outcome will tend to be particularly one-sided. Groups are typically formed of these three general personas:
- ‘senior leaders’ – those who ultimately decide on the strategy and are responsible to the board and investors for its success.
- ‘implementers’ – typically middle managers, directly responsible for the implementation of the strategy.
- ‘oracles & rebels’ – employees who are passionate about a specific topic, have valuable industry and company experience or have a fresh perspective on existing issues.
When selecting these people to help create the innovation strategy, it is also worth asking them to prepare, individually, ‘back of the napkin’ SWOT and PEST analysis of the company and industry, respectively. It’s also worth requesting the collection of external insight, trend and prediction reports regarding existing and new markets. An additional component which is a highly underrated part of the process is the gathering of their insights from direct interactions with the company’s existing customers. If time is short, it’s worth considering the use of external researchers who can help curate pre-read materials such as market trend analysis, reports and other information that aid the process.
Learn more about why we think the traditional way of developing and deploying strategy is flawed. And how we help fix it.
The first step of this approach to the development process starts with a strategy formulation workshop, the function of which is to gain the ‘lay of the land’ across three dimensions; company, industry and customers. This first phase is open to any of the three invited groups of people (personas) to attend. However, with syncing calendars always an organisational challenge, our experience has shown us that at this stage it’s more important to get the ‘implementers’ and the ‘experts’ to attend than ‘senior leaders’.
‘In today’s innovation-led world, a strategy needs to be viewed as a series of assumptions to be tested rather than just actions to be executed’ highlight Marianne Valderhaug, Director Technical Support at DNV GL, at the kickoff workshop we facilitated for them as part of the innovation strategy development process. In other words: setting long-term growth aspirations is an exercise in uncertainty. How do we know a particular part of the core portfolio won’t go into decline? Why will a particular customer behaviour materialise while another will not? These (and many more other) questions are impossible to answer definitively, after all, the only available data is about the past. Hence, a strategy based on these inputs is akin to a new product in its early development days, a great idea but based on an assumption to be tested. Thus importing best practices from the fields of agile development and lean startup makes sense. So, as any good innovation manager or product owner will tell you, the first step in validating an assumption is formulating a robust assumption. Reasonable assumptions are specific, time-bound and easily tracked and measurable over time. Clarifying the assumptions upon which the strategy will be based helps combat the ambiguity effects – the tendency for people to choose options whose outcomes are unknown – and lays the foundation for even sharper and more-useful planning.
As participants progress through this approach, the requirement is for them to come up with answers for questions on all of the three dimensions described (company, industry and customers). For every item, they provide their best assumption over varying timeframes, e.g. a three, five and ten-year horizon.
Company perspective questions gear towards understanding the general internal context of the company from everyone’s perspective.
Questions relating to the ‘company’ dimension should be geared towards understanding the general context from everyone’s perspective. They are thus providing a more holistic overview as opposed to individual opinion or a potentially skewed view from a single department.
- Which business models from the company’s portfolio are facing decline?
- Which arenas should the company explore in the future?
- What are the threats, opportunities and competitors you see for the company?
- Which competitive advantages and assets should the company use in its innovation efforts?
- Where should innovation have it’s focus/impact?
- Which priorities and targets should innovation deliver on?
- How should the company capitalise on the identified trends?
The answers to these questions should be as precise as possible, and more importantly, should be extensively discussed in the group. Only then should they be committed to the proverbial post-it note and stuck it on the wall.
The industry perspective questions are there to uncover the group’s understanding of the macro-environment the company operates in:
- What is changing in our industry? What will the industry look like in the future?
- What are the driving forces for change in our industry? What is currently driving change?
- Which kind of innovation is continually being overlooked by our industry?
- How can the status quo of the industry be changed?
- What can we learn from others? From whom?
- What adjacent industries are impacting our industry, and what can we learn from them?
Much like the industry and company dimensions, the customer dimension questions are there to ensure alignment between participants. For the customer dimension questions, people having constant customer interactions such as key account managers, for example, are very important. If facilitated correctly, this part of the process can double as a sharing platform between the roles which are closer to the customer and the functions further away.
- What are some general emerging trends with our customers?
- What new technologies are our customers using or do we think they are going to use?
- What will be the jobs our customers will try to get done in the future?
- Which markets do we think our customers are going to be in?
- What are some macroeconomic trends impacting our customers, that we might leverage for our growth?
In the case of more complex industries with more than just one buyer, the customer questions need to be considered for all customer personas. Taking the pharmaceutical industry as an example, the questions need to be answered from both the perspective of the patient as well as that of the healthcare professional. Both groups are considered customers, or more accurately, customer and consumer, so the answers to the above questions will vary for each group allowing everyone in the company to understand with greater clarity, the challenges and complexity of innovating in this ecosystem.
The second step of the process is based around conducting a series of interviews. Typically the discussions are geared towards getting input from the ‘senior leaders’ and ‘oracles & leaders’ but also from anyone not able to participate in the first phase. In the interest of consistency, it is advisable that these interviews are based around the same questions from the initial workshop. However, with interviews typically short in nature, we’ve found efficiency is best when only selected questions are used. The selected questions need to reflect the peculiarity of the company and the ecosystem it is active in. The key tip here is to make sure accurate notes are taken, and the resulting inputs are consolidated with the output from the workshop.
Another benefit of running interviews – besides being able to involve more people in the strategy development process – is that it allows for people to speak their mind without being under the influence of cognitive biases such as groupthink, which prevents people from voicing views that might rock the proverbial boat.
“Involving people that otherwise wouldn’t have been involved in the process of developing an innovation frame gives us now, on the one hand, a better footing for implementation of the innovation strategy, and on the other hand a more rounded view of our ever-evolving competitive landscape.” Marco Dietrich, Head of Strategy EMEA for Bayer.
The third step of the process is to create the first iteration of the innovation strategy in collaboration with a component of the ‘implementers’ group.
The innovation thesis is the outcome and the actionable document of the innovation strategy. Just like venture capitalists have investment theses that specify the types of startups and markets they’re prepared to invest in, every large company must have an innovation thesis. An innovation thesis sets out a company’s view of the future and the strategic objectives of innovation. The innovation thesis needs to help everyone make more deliberate investment decisions, both internally (own product development) and externally (investing in startups).
The thesis will always be used by more people than just the ones that created it. Thus clarity is a must. The more ambiguous the thesis, the less likely it will be used effectively or be used at all. Also, a thesis serves as a ‘decision companion’ catering for the needs of people at each hierarchy level across the entire product lifecycle.
In our experience, a synthesized thesis should be formed of three parts; statement, antithesis and thesis—each section addressing the particular needs of specific target users. The statement part of the thesis is centred around providing a macro view of the company’s innovation ambitions, communicating the big picture without going into too much detail.
Following the statement is the antithesis, created to paint a clear picture of the things the company is deliberately not going to invest in. If the statement part is primarily useful for executives and stakeholders, the antithesis part is helpful for top and middle management on the basis that this group typically makes the vast majority of investment decisions. A precise antithesis can also prevent innovators from coming up with ideas not in-sync with the company’s purpose or vision for the future.
As the thesis needs to be useful in the decision making process at every stage of a product’s lifecycle – and not just in ideation or idea selection – it needs to cover problem spaces, business models and technologies. The antithesis problem spaces segment then outlines what areas the company is not interested in exploring. If an idea falls into any of the areas mentioned in this part, the company theoretically will not invest in the exploration process.
As a product matures and it passes the problem-solution-fit stage, the antithesis needs to set clear rules on the type of business models the company is not motivated to pursue. For example, business models that require the sale of customer data can be listed there.
As the product matures, the antithesis needs to stipulate the type of technologies the company will not back. In this part, the document should not name particular technologies, but provide a more broad outline by mentioning characteristics of technologies (e.g. requires on-premise infrastructure, are not secure enough and so on)
In the final document, the antithesis is followed by the thesis. The thesis specifies what the company will support and for consistency and ease of use, its structure should follow the same rationale as the structure of the antithesis as the thesis and antithesis users are the same.
The fourth step of the process requires the ‘implementers’ and ‘senior leaders’ to make sure that all the views from the previous steps are accurately included in the strategy document. This also allows the senior leaders to agree on the presented strategy collectively.
Whenever we’ve run this anywhere in the world, we’ve always defaulted to the essential tools of large format prints, post-it-notes and sharpies. Utilizing large format, (typically ‘A0’) printed copies of the thesis hung around the facilitation room allows amendments to be done on post-it-notes and applied directly on the sheets in a clear and visible way for the whole group to see. Following this, the agreed amendments can be consolidated into the second iteration of the innovation thesis, thus concluding the development process of the company’s innovation strategy.
In the words of Vegard Hansen, Head of Innovation Ecosystem at DNB: ‘an iterative process with key stakeholders helps us build consensus and the unity in vision that’s required when trying to create clear growth options while prioritising resource allocation’
What’s also worth noting, is that adopting a method like this isn’t just about adding in the contribution of employees, it’s about the changing nature and process of creating itself. What’s also important to note is the evolving requirement of external consultants from a primary strategy developer role, to a facilitation role. From telling a company what they should be doing, to helping the company discover what they should be doing themselves. From leading with answers to leading with questions.
Although the development process of the innovation strategy has concluded, the deployment is just starting. And the successful implementation of a strategy always begins with a solid communication plan. However, given that so many people will have been involved in the process, there should be a shift in ownership over the outcome. Therefore it’s typical to see these contributors acting as communication agents or evangelists for the new strategy, reinforcing that it isn’t the usual top-down, ‘created by them and done to us’ approach. With internal social network platforms being utilised more and more, even a simple post about the new strategy coming from a handful of people involved can go a long way.
Other, more formal ways of communicating the new strategy, might include; town-hall meetings, internal newsletters and direct communication with the department that will run point on the deployment of the innovation strategy such as the corporate venture capital team, the R&D and innovation labs and/or the innovation department.
What’s worth remembering though is that, although in the development phase, multiple people contributed, the strategy is still based on assumptions. And as we saw earlier, importing best practices from the world of product development might be useful in the deployment phase. However, performing experiments that will validate (or invalidate) the baked-in assumptions and attain higher levels of innovation-driven growth, require significant changes in the way of working. These changes include, amongst others, the development of a company-wide innovation framework, better known as product life cycle, an innovation accounting system, an innovation leadership framework based around the mindset and behaviour required to deliver the strategy and of course, an organisation-wide focus on embedding and scaling innovation capability or in other words building a culture of innovation.
More practical components will also need to be considered like periodic review meetings and most importantly, thesis review meetings. For example, thesis review meetings should typically take place every 6 to 12 months to update the thesis with insights from experiments performed, meaning adding new details into the thesis or changing the position of existing items from the antithesis to the thesis part.
Leaders, managers and employees the world over agree that the right attitudes, values, and behaviour are required to drive innovation. Openness to new ideas and a willingness to experiment and take risks usually top the list. In an innovation-led culture, employees know that their insights are valued and believe that it is safe to express and act on those, So, what better way for executives to reinforce this state of mind than by involving employees in decisions that matter to them and the future of the company.
An important contribution to this piece was made by Cris Beswick
This article was originally posted on The Future Shapers where I’m a regular contributor.