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What You Need to Know About Innovation When Creating a Business Strategy

"Innovation" and "strategy" are overused terms, but your company's success depends on gaining a real understanding of how the two are intertwined.
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If you're telling your employees to "innovate strategically," you had better have a good handle on the complex relationship between innovation and strategy. Otherwise, you're better off using other buzzwords.

Vijay Govindarajan, a professor at Dartmouth College's Tuck School of Business, writes in Harvard Business Review about four of the most important nuances of how innovation relates to strategy. "By definition, strategy is about allocating resources today to secure a better tomorrow," he writes. "Innovation is about commercializing creativity. If a firm is not making money with an idea, there is no innovation."

Below, read how Govindarajan believes the two concepts relate to one another in business.

Every industry has a different pace.

Govindarajan says that not every industry is equally dynamic. "Some industries are faster paced than others," he writes in HBR. Keep this in mind while you're thinking of ways to innovate your business model, product, or service. The smartphone industry, for example, is extreme fast-paced--it has gone through many disruptive changes in only a decade--while the steel industry's disruption spanned a century. "Managerial 'best practices' in a fast-paced industry don't necessarily apply to everyone, everywhere," he writes. So it's vital to know at what pace your industry is running.

All innovation is not created equal.

Innovation is not one-size-fits-all--you need to figure out what type of innovation your business needs. "I put all innovations into two broad categories: linear innovations (which are consistent with the firm's current business model) and non-linear innovations (not perfectly continuous with the current business model)," Govindarajan writes. "But we need to add another layer of complexity to those categories: innovations can be incremental or radical." He cites a hypothetical example of the business school where he teaches: If professors from different disciplines were to co-teach courses, that would be a linear, incremental innovation. A radical non-linear innovation would be to offer an online MBA degree, fundamentally changing the school's business model.

Innovation and strategy requires execution.

There's no way around this one--innovation and strategy necessitate action. Govindarajan says that the point of innovation is to commercialize creativity. "The real challenge lies in the long, frustrating journey toward converting an idea into a fully scaled up profitable business. Moreover, this isn't always about coming up with new products and services," he writes. "We tend to think of a shiny new product offering when we picture 'strategic innovation,' but that's 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)."

Innovation and strategy is a team sport.

It takes the entire company to change its actions for a particular strategy or innovation to take root. "There are two significant problems if the firm's 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," Govindarajan writes. "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 firm's history."

A.G. Lafley: How to Blend Creativity and Discipline into a Business Strategy

The recently returned CEO of Procter & Gamble describes how to effectively bring creative ideas to market.

IMAGE: Getty Images
Last updated: May 21, 2014

WILL YAKOWICZ | Staff Writer | Reporter, Inc.com

Will Yakowicz is a staff writer for Inc. magazine. He has covered business, crime, and local politics for The Brooklyn Paper and was the editor of Park Slope Patch. He has also reported on the West Bank and Moscow for Tablet Magazine. He lives in Brooklyn, New York.




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