After a time in which it has seemed that execution was all the rage, strategy is a hot topic again in business. However, despite lots of available guidance and no lack of effort by executive teams and strategy functions, companies increasingly struggle to obtain results from the strategies they have developed.
In our view, the critical root cause of this underperformance is not strategy execution, but formulation. Today’s world of fast change, digitization, new entrants, and disruption requires a different approach to strategy development: one that is less focused on extrapolating the present and more on working back from a future that offers opportunity, and that is just as rigorous as traditional approaches, but less formulaic.
That’s the heart of strategic innovation: an innovation-centered model of strategy that uses proven discovery and creative techniques to formulate strategy, and then ensures that product, service, and business model innovation are directly driven by the strategic agenda. In practice, this linkage is where most organizations break down. BCG reports that while 83% of executives rank innovation as a top-three priority, only 3% qualify as “innovation ready,” and just 12% report strong links between business and innovation strategies delivering real impact.
The myths that keep innovation disconnected from strategy
In our work with clients, we stress the importance of strategic innovation, linking the innovation agenda and strategy inseparably – and we bring a variety of tools and techniques that companies can use to do just that.
More than you think, though, clients (surprisingly enough, often the leaders of internal innovation teams) push back – with questions and objections that point to some myths about the relationship between strategy and innovation:
The following myths (and the better questions behind them) are common.
“We already have a strategy, so we don’t need to think about Strategic Innovation”
Ask: Has our strategy been translated into an aspiration for a future that is meaningfully different from our past?
If the strategy is vague (“customer-centric,” “digital,” “growth”) or rooted in incremental improvements to today’s business, it won’t guide breakthrough innovation. Too often, strategies are either so broad they don’t indicate where to innovate, or so rooted in the status-quo that they don’t clarify why innovation is key to our long term succes.
“Can’t we just innovate?”
The myth here is that strategic aiming – that is, making choices about where we will focus – reduces innovation success. Evidence and experience suggest the opposite: creativity works better with the right constraints. Harvard Business Review authors reviewing 145 empirical studies found that individuals, teams, and organizations can benefit from “a healthy dose of constraints” (and only suffer when constraints become excessive). This leads to ideas that relate to each other and drive natural conversations about how small ideas in a given domain can be combined or linked to create big results. In most innovation process maps you see, the first step is either “discovery” or “ideation” – when in reality it ought to be “aiming.”
“Innovation is one thing—strategy is another”
Often, the underlying myth here is that strategy should be developed by doing lots and lots of hard-core financial analytics, and that innovation is that fuzzy, touchy-feely stuff that might cook up some great new product ideas but could never help us set the direction of the enterprise – so they have nothing in common. This belief splits analysis (strategy) from creativity (innovation) and leaves value on the table.
In reality, the same front-end factual discovery process that creates the diverse stimuli to feed product, service, and business model innovation also does a fabulous job in helping to identify the dimensions of highly-differentiated strategies. Think about it: if you invest in building insights about unarticulated customer needs, likely step changes in the external environment, and your deep competences, why wouldn’t you use those to create strategic options as well as new business ideas?
“Isn’t it dangerous to apply innovation techniques to strategy?”
Exploring bold strategic alternatives doesn’t commit you to them. But if you never consider truly different futures, the risk of being blindsided while you operate within old paradigms goes up. Innovation techniques can widen the strategic option set, and leadership can make evidence-based choices.
“Won’t we have to get executives involved?”
Yes, and that’s a feature, not a bug. Sometimes the concern seems to be, “Geez – we just now have gotten the permission to work on this ‘innovation thing,’ and if we don’t keep under the radar, there’s a chance that the executives will make us change direction or meddle in our work.” BCG found that 52% of executives cite an unclear or overly broad strategy as a top-three challenge for innovation teams. If the top team hasn’t aligned on the future, innovation will default to politics, pet projects, or “random acts of innovation.”
The four principles that make strategic innovation real
Once you decide to push ahead with the development of an innovative strategy, there are a few critical principles you must follow to succeed.
1) focus on future identity
Strategies often become labels on buckets of initiatives (“expand capacity,” “enter new markets,” “build cost competitiveness”). That makes you jump into action planning mode, not thinking directionally. A more productive starting point is describing the company’s future identity: three to ten years from now, when an informed observer writes about your company, what will they say you became—and how did you shape the evolution of you industry?
Practical move for innovation leaders: translate the enterprise strategy into 3–5 “innovation missions” written as future outcomes (not activities). Example formats:
- “Become the category’s fastest ‘time-to-decision’ provider for [customer job].”
- “Redefine the profit model in [segment] through [platform/business model shift].”
- “Win the right to play in [adjacent space] by leveraging [distinct capability].”
These become portfolio guardrails, funding logic, and evaluation criteria.
2) be different from the rest
If your competences, customer sets, strategic assets, and profit models mirror those of your competitors, you should expect commodity returns. Winning is about being different, not just better. Yet many companies rely on benchmarking or generic frameworks that converge everyone on similar strategies. They fail to create a diverse enough set of plausible future identities to choose among, muddle along without making tough choices about what they are and aren’t going to become, and then stick too long to rigid plans while the world changes around them.
To break out of the trap, use innovation techniques including market discovery and diverse participation to create a truly divergent set of potential future directions for your company; our approach usually creates four “bookend” strategies, each plausible, but very different from the others.
A useful test: for every major innovation theme, ask, “If a competitor copied this in 12 months, would we still win because of assets, capabilities, data, channels, ecosystem position, or cost-to-serve advantage?”
3) agree on why rather than arguing about what
How do leadership teams converge after exploring divergent “bookend” strategies? By making assumptions explicit. We call these “have-to-believes”—the critical conditions that must be true for a strategy to be attractive. When leaders align on assumptions (the “why”), agreeing on direction (the “what”) becomes faster and less political.
4) make it real with opportunity platforms
Finally, build opportunity platforms that make the chosen future identity tangible, not just product ideas, but operating modes, pricing models, alliance networks, market positions, and business models enabled by digital possibilities.
Conclusion
In our experience, strategy and innovation can, and should, work together in a virtuous cycle – strategic direction guides the search for ideas, and the patterns in our ideas inform and shape the evolution of strategic direction. Take advantage of the inextricable link between direction and opportunities – and reap the results.
If you’re serious about strategic innovation, what’s the one decision you could make today that would tighten the link between your innovation agenda and your strategy?
How Strategos can help
We can help organizations build the capabilities to repeatedly create growth.
In practice, we help leaders strengthen strategic innovation in five ways:
- Innovation-centered strategy formulation: working back from plausible futures to define differentiated strategic options (not incremental extensions of today).
- Strategic aiming and opportunity platforms: translating strategy into clear innovation missions and platform roadmaps that guide investment and experimentation.
- Leadership alignment on “have-to-believes”: enabling faster, less political convergence on direction by aligning on assumptions and evidence.
- Innovation system design: portfolio governance, decision rights, funding mechanisms, metrics, and operating model—so priorities translate to throughput and impact.
- Capability building: equipping teams with repeatable tools for discovery, concept design, and de-risking, so innovation performance improves quarter after quarter.
