To produce innovation we must have an innovation strategy. What is it? An innovation strategy is different from a firm’s overall strategy.
The business strategy aims at what the firm, as a whole, wants to achieve, and how to achieve that goal. Although these what and how questions sound familiar to the ones in innovation strategy, here they capture a broader scope. What and how questions in a business strategy relate to the product categories, market segments in which the company positions itself relative to the competitors. Consider IKEA’s business strategy, for example. IKEA positions itself in offering relatively inexpensive and contemporary furniture to young people. IKEA tries to differentiate itself in that market by offering high quality products for very low prices. A business strategy should also define the reach and stretch of these objectives. IKEA’s strategy has so far been based on organic growth rather than acquisitions, wholly owning the stores rather than having joint ventures or franchises. Business strategy also defines the sequence of strategic actions such as when to expand or launch advertising campaigns.
Business strategy should explain how the firm plans to generate revenues
If you consider the IKEA example again, the profits rely on scaling, standardization, and high volume of operations, where embedded supplier relationships are the main focus. A firm’s innovation strategy and business strategy should align and support each other. If the business strategy targets low cost manufacturing, then the firm needs to define its innovation strategy towards investing in, for example, small improvement projects that target operational excellence. The link between innovation and business strategies also explains what not to innovate.
In addition, an innovation strategy should be crafted according to current and future state of the industry, customers, and competitors. After crafting an innovation strategy dynamically, the next step in the innovation strategy is to implement it.