Innovation strategy

Innovation strategies are different from many business strategies, because of the difficulty of predicting the steps, time and impact of the innovation.

An innovative strategy guides decisions on how resources are to be used to meet a business's objectives for innovation, deliver value and build competitive advantage.

Strategies should include:

  • an analysis of a business's competitive and technological environment
  • its external challenges and opportunities
  • its distinctive advantages.

Developing an innovation strategy

There are many different types of innovation, and the type of innovation will be determined by the innovation strategy. The strategy will be influenced by the stage your company has reached, where it is heading, and the desired outcome of the innovation.

Determine your desired outcome

Your innovation strategy should reflect what you want to achieve from the innovation process, for example:

  • Develop a new product—you may see an opportunity for a radical change in the type of products offered on the market.
  • Protect market share—in a dynamic global environment, continuous innovation is required in many instances just to maintain market share.
  • Expand market share—for example, offering existing products in a different market.
  • Sell or licence to another organisation—you may be looking at an exit strategy, once the innovation is developed you can sell or licence the innovation.
  • Retain more staff—a commitment to innovation can motivate and retain skilled staff by providing a challenging and creative environment.
  • Improve operational efficiency—you may wish to reduce costs through streamlining your operations.
  • Increased recognition in the marketplace—you may wish to increase your profile in the marketplace through an innovative marketing strategy.

The type of innovation and the level of risk you attribute to that innovation will vary depending on whether you are seeking to expand your business or maintain your current revenue or profit. Your company may pursue multiple outcomes and therefore will require multiple strategies.

Once you have determined your intended outcome and how this fits within your company, think about the type of innovation strategy that will best achieve your outcome.

Types of innovation strategies

Innovation strategies can be classed as proactive, active, reactive and passive (Dodgson et al. 2008).

Proactive

Companies with proactive innovation strategies tend to have strong research orientation and first-mover advantage, and be a technology market leader. They access knowledge from a broad range of sources and take big bets/high risks. Examples include: Dupont, Apple and Singapore Airlines.

The types of technological innovation used in a proactive innovation strategy are:

  • radical—breakthroughs that change the nature of products and services
  • incremental—the constant technological or process changes that lead to improved performance of products and services.

Active

Active innovation strategies involve defending existing technologies and markets while being prepared to respond quickly once markets and technologies are proven. Companies using this approach also have broad sources of knowledge and medium-to-low risk exposure—they tend to hedge their bets. Examples include Microsoft, Dell and British Airways.

These companies use mainly incremental innovation with in-house applied research and development.

Reactive

The reactive innovation strategy is used by companies:

  • which are followers
  • have a focus on operations
  • take a wait-and-see approach
  • look for low-risk opportunities.

They copy proven innovation and use entirely incremental innovators. An example is Ryanair, a budget airline which has successfully copied the no-frills service model of Southwest Airlines.

Passive

Companies with passive innovation strategies wait until their customers demand a change in their products or services. Examples include automotive supply companies as they wait for their customers to demand changes to specification before implementing these.

References

Dodgson, Mark, Gann, David and Salter, Ammon. 2008. The Management of Technological Innovation: Strategy and Practice. Completely rev. and updated. Oxford: Oxford University Press.

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  • Last reviewed: 8 Jul 2024
  • Last updated: 8 Jul 2024