Although every organization has an innovations strategy, not every innovation strategy is intentional and deliberate. There are two ways by which organizations create their innovation strategy. First, firms often allow the rise of an emergent strategy that comes about by many decisions independently made. Second, a carefully crafted innovation strategy that follows a more formal process. Although either process can result in a robust strategy, it is important to know the limitation of an emergent strategy.
Five Types of Emergent Innovation Strategies
More organizations rely on emergent innovation strategies than on deliberate ones. A central team does not form such strategies. Instead, hundreds and thousands of managers across the globe take independent decisions. The total of these decisions results in an innovation strategy. Depending on the nature of decision making, these strategies fall into five categories.
Business Weighted Strategies
Such strategies overweight larger business units and their innovation needs over all others. It is also the most common emergent strategy mechanism.
Organizations often benchmark their spendings in line with the revenues at a business unit level. Such benchmarking leads to greater spending pool with larger units. Moreover, budgets and spending patterns are sticky over time. Once a budget for spending is set in one year, it often becomes an anchor for spending in future years. This is the evolutionary logic of business weighted strategies.
Most often, the assumptions behind such emergent strategies are sound. A larger business requires more innovation dollars than a smaller unit does. It is also difficult to argue for disproportionate innovation dollars for smaller units. It also makes the logic behind this strategy relatively sound.
But this method also has a limitation. It assumes that the relative importance of current businesses will remain constant. It looks at future with a rear view mirror. This method becomes a major drawback when the market is on the cusp of significant change. Such strategy led to the death of diode makers when the market was changing. The diode manufacturers continued to pour their innovation dollars making better diodes when the market was moving to integrated circuits.
Time Weighted Strategies
Emergent strategies are often time weighted by their nature wherein current projects get greater weight than future projects. This results because future projects are often unknown and the current projects are often urgent.
As a result, previous projects often crowd out current needs. This situation could be familiar to you. You fail to receive funding for new project because there are no resources. Even when a new project is critical, it has no place. Funding a new project would require an old project to be killed. But killing a project is one of the most difficult decisions to take. As a result, some important projects do not get the needed funding.
Time-weighted strategies create a rigidity in the organization, but this outcome is often accepted as a norm. These rigidities are also exacerbated by sunk cost bias of managers. This bias prevents firms from writing off older investments because so much has already been invested.
Time-weighted strategies are often sound financial choices. If I offer you two projects with same payoff profiles but different uncertainty, which one will you choose? The right thing is to pick the one with lower risk. Time-weighted strategies in effect help you pick lower risk projects.
The drawback in this strategy arises when an organization does not look ahead far enough. In such cases, older projects can crowd out newer but more important projects.
Influence Weighted Strategies
Another common basis for a strategy is influence-weighting. It involves influential managers directing more investments towards projects they choose. As a result, the emerging innovation portfolio is influence weighted.
There is nothing wrong with a power-weighted strategy in general. Influential managers are often more senior and thus have more experience. This experience provides them with better judgment to pick the right innovation projects.
As long as some of these conditions are true, influence weighted strategies would work. But, when influence is weakly correlated with seniority and skill, this strategy backfires. If influence is a result of political astuteness alone, it may add little value to the strategy.
In a recent research project, I came across many such cases. In one, the CEO of a company gave special importance to the advice of an influential member of the board. The member had a successful past in a different industry. This past success led to an aura of invincibility around his ideas. In spite of enormous resources spent on that idea, the project failed. The reason was that the influential promoter had a weak market understanding of the new industry.
Competition Weighted Strategies
Companies sometimes use competition weighted approach to develop their innovation strategy. In such cases, the innovation strategy becomes almost a reactive if-this-then-that algorithm.
Sometimes, competition is a poor barometer for the business needs in future. At other times, by the time competition has launched something, it is already too late. A case in point is Blackberry. It was competing with Symbian in the market. When Steve Jobs launched the iPhone, both Blackberry and Symbian were blindsided. They were so focused on each other that they didn’t realize what was possible. Within the next three years, both Blackberry and Symbian lost more than 50% of their position in the market.
A competition weighted strategy is often a second mover strategy. As long as you understand the strengths and weaknesses of this approach, you can use it well. Such a strategy is useful because it allows you to learn from the mistakes of competitors. You can let them develop new ideas and fail. By holding your fire, you conserve your resources. When the time is right, you jump on the bandwagon.
Such a strategy may be great but never an excuse to not conduct an ongoing landscape assessment. It would be akin to focusing on the other cars on the road and taking your eyes off the road completely. Such a plan would indeed be suicidal.
Impact Weighted Strategies
Many organizations use risk-return calculus to determine projects in their innovation portfolio. A concrete risk-reward paradigm for guiding strategic choices is often prudent. But this method makes less sense during significant discontinuities.
Over a 100 year period, Kodak was prudent to invest in incremental innovations in film roll. That is where it achieved the highest rewards. But as digital imaging innovation arrived, that method could no longer work. It was clear to the management that digital cameras could make Kodak obsolete. At such time, it had to change course and override its old guiding principles. For a decade, it spent over 50% of its R&D budget on digital imaging with uncertain returns.
When a discontinuity is significant and visible to the management, the risk of impact weighted strategies is small. But this risk becomes bigger when the visibility of a discontinuity become small.
Key Lesson
As would be obvious to you by now, organizations often use a mix of these five approaches to allow emergent strategies to flourish.
In general, emergent strategies leverage the wisdom of management, survival principles, and organizational capabilities. But every emergent strategy has its limits due to which it can hit a wall. At such times, these approaches can back fire and become detrimental. This limitation of emergent strategies calls for a comprehensive innovation strategy.
Do you understand how your innovation strategy arose? Can you articulate it?
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