strategic design & innovation

Strategic Change, Transformation and Innovation

portfolio management strategy

Prosecuting successful innovation necessarily requires any organisation to make changes. Indeed, turning this around, it can be helpful to think of innovation as a mechanism for achieving a desired change.

Unfortunately, the very word 'change' is often as poorly defined as the word 'innovation'. A wide range of business decisions are often conflated under the umbrella of 'change and transformation', and a recently published article advocates that we "change how we think about change".

innovation can be viewed as a mechanism for achieving a desired change in magnitude, activity or direction

It suggests that change should be differentiated according to three very different strategic responses to business challenges, a proposal which aligns with how we think about the three levels of innovation ambition:

Magnitude: change to enhance execution of your current path, to make gains through productivity improvements and incremental growth initiatives – core innovation

Activity: change to adopt new ways of pursuing your current path, through changes to your business model, market or product focus – adjacent innovation

Direction:  change to an entirely different path, exploring the opportunities in entirely new arenas, seeking breakthrough innovations – transformational innovation

It's worth noting that the common use of the phrase 'digital transformation' within established corporations can muddy the language here: the majority of such programs are designed to enhance execution, and some to deliver new ways of conducting various activities to better forge ahead along the same path. What 'digital transformation' programs are not designed to deliver is 'transformational innovation', complete changes of direction.

The key question for business leaders is to identify the nature, scale, and timing of the change that is appropriate for their company’s specific context.  And that requires you to answer two fundamental questions of your strategy:

    1. Is it fit for purpose? Is it valued by an attractive and accessible audience (measured by market size, willingness to pay, and business model appropriateness) and the level of resource outlay required to scale the strategy?
      2. Can relative advantage be sustained? Can it deliver meaningful differentiation to the attractive, accessible audience and the durability of the competitive advantage created by that difference?

      Having determined how your strategy measures up against these two key questions, you can then assess the type of change / innovation effort that is required:

      • where both fit and relative advantage are high, changes to enhance magnitude will bolster your position
      • where both fit and relative advantage are low, a complete shift in direction is required to fend off a descent into irrelevance
      • where fit and relative advantage are rated somewhere between these extremes, continuing on the same strategic path but re-imagining how your current activities are performed is the change required

      A healthy innovation portfolio will incorporate an appropriate weighting of initiatives across this spectrum. Diagnosing the appropriate change required for your organisation at any given time, and the concomitant level of innovation ambition, is critical to determining the right form of change / innovation initiatives to deliver the optimal outcome. 

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