Choosing Your Destiny: How to Design a Winning Innovation Strategy

Choosing Your Destiny: How to Design a Winning Innovation Strategy Nasrin Latif Shooshtari & Sr. Blessing Okere

Choosing the Right Strategy • Decide how your firm is to play the innovation game. • There is no menu of generic strategies available. • Innovation must support business strategy. • Without a clear game plan, alignment of key players in your firm innovation will not be successful.

Play-to-Win or Play-Not-to-lose Strategies • Dominant companies are more aggressive innovators than non-dominant companies dominance is not a strategy, it is an outcome • Within the innovation matrix firms can choose to channel its resources to a particular part of the matrix

Play-to-Win Strategy • Goal is to produce significant competitive advantages that its competitors will not be able to easily or quickly match. • Market-leading strategy relies on: • semi-radical innovation to drive transformation in the firm • create market-changing ideas and product. • PTW firm invests in changes in technology and business models • A PTW Strategy is typical of high-technology startups • Risk involved with PTW strategy: • usually have only one or two innovation investments • do not have the strength of a strong investment portfolio • dot-com & Webvan • Amazon.com

Play-Not-to-Lose Strategy • Use PNTL strategy when: • external competitive environment is extremely intense or uncertain. • if a firm has significant internal constrains. • PNTL Strategy is of more incremental innovation than PTW • Johnson & Johnson • The goal is to ensure the firm stays in the game by moving quickly, taking calculated risk by matching or surpassing any moves by competitors. • Firm using PNTL would watch for improvement in the external environment, make improvement in its internal capabilities, attempt to wear down the competition, and look for opportunity to shift to a PTW strategy at the appropriate time.

Play-Not-to-Lose Strategy cont...... • Firms with PNTL are often fragmented industries where changes in technology and business models occur quite rare. • The winner are firms that consistently beat competitors • in making incremental improvement to technologies and business models. • Risk with PNTL: • highly vulnerable to competitors that break from the pack and shift to a PTW that depends on semi-radical or radical innovation • believing your PNTL is working when it does not work.

Too Much of a Good Thing • “Innovate or Die” • too many innovative ideas for firms to process clouds their judgment on which ideas are truly great. • A lack of radical innovation can lead to failure • “Innovate and die” • taking the wrong kind of risk and by playing the wrong kind of strategy.

Clearly Defined Innovation Strategy Drives Change • Success in innovation requires a clearly defined innovation strategy that matches the current realities in the firm. • Attempting to change everything at once is not a formula for success.

Do You Select an Innovation Strategy? • “ Over time every business model and strategy stale in our fast forward economy, strategies reach their sell-by date faster then ever.” Hamel & Sakrzynski Factors to consider in choosing an innovation Strategy:

Internal Factors • Technical capabilities • The current capabilities that company has internally or can access through its innovation network • Organizational capabilities • Shifting to a more radical innovation approach will not happen if the organizational and management capabilities are not present • Success of the current business model • The greater the success, the greater the potential resistance to change • Funding-too much funding may be a dangerous as too little • Top management vision • Management talent has a very relevant role in selecting and evolving the company’s innovation strategy

External Factors • Capabilities in the external network • Assesses to the relevant capabilities are crucial • Collaboration with other organization that have complementary resources • The ability to create sustainable alliances with partners becomes important in deciding the innovation strategy going forward • Industry structure • Industry value chain • Who dominates and why • The structure of the barriers to entry are important inputs to the design of innovation strategy • Competition • The Quality and speed of innovation of your competitors as well as your innovations will determine the shape of the market in the years to come • Rate of technological change • When new advance outdate your product, it is important to identify the change approaching before your product goes old.

Risk Management and Innovation Strategy • Assuming that no significant disruption occur to the competitive arena, as we move up and right on the innovation Matrix, the level of risk that we take is higher • If a disruption has occurred: • Incremental activates that do not address there disruption could be the risky path • If a disruption has not occurred: • Adding a greater component of radical innovation increase the risk • Therefore a Play-to-Win strategy is riskier than a Play-Not-to-Lose Strategy, why? Because it relies on a larger component of semi-radical and radical innovation, ex Appel-ipod

Innovation Strategy: The Case of the Pharmaceutical Industry • It is useful to consider a leading industry segment and innovation challenges it faces • The Pharmaceutical Industry- a field with powerful, innovation player: • Example-Lipitor • Many companies is getting harder to innovate successfully and the flow of viable new products has been difficult to maintain • Attempts to Solve the Innovation Problem • Changing the Innovation Approach

1. Attempts to Solve the Innovation Problem • Lack of success in innovation by improving their R& D through two methods: • First method is Use Scale: companies have acquired other companies, thereby combining their R & D piplines to attain economics of scale • Second method: Pharmaceutical companies develop closer ties to biotech and genome organizations in order to get better information on new molecules with the promise for use in new drugs

Changing the Innovation Approach • From an outsider’s perspective: • Changing their mental model of innovation and pursuing alternate innovation approaches • They need to solve their innovation problem by being innovative • Pharmaceutical companies: • Invest in developing technologies will produce major blockbuster drugs • Unbalanced innovation portfolio and are addicted to technology • The potential gains for a successful breakthrough can be tremendous • It would be careful for pharmaceutical companies to consider shifting their strategy-pursuing semi-radical technology changes to pursuing break-throughs in new business model

Changing the Innovation Approach (cont.) • The company would invest in changes to its business models • To create competitive advantages to the complement its technology investments • Would allow it is to serve markets better than its traditional competitors • The company would also maximize the return on its innovation investment • Innovation options: • Increase level of services • Change in the supply chain or a similar operational breakthrough • Close, better connections to the players

Strategy and the Innovation Rules • How much innovation dose my company need? • What are the areas that I should focus the innovation? • What portfolio of innovation types do I need? How much business model innovation? • How much technology innovation? • What mix of incremental, semi-radical, and radical innovation?

Thank you!

Choosing Your Destiny: How to Design a Winning Innovation Strategy