Strategy Lessons from Innovation

Learning from other domains and connecting different ideas with our own practices is not only important to hone our own skillset, but also a valuable source to challenge and advance the state-of-the art of our profession.

For the betterment of strategy development, the field of innovation has shown to be a key driver for improving current thinking and practice. At the Implement Consulting Group, where I was a partner in the Strategy Practice, we have been using powerful ideas, approaches, and methods from the innovation domain for many years. In this article, I would like to share 4 important lessons for improving strategy work.

1. We need to generate new data with experiments

The future cannot be “solved”.

Traditionally, strategy is often thought of problem solving in a given space, based on data and analysis.

Since data is from the past (by definition), the underlying assumption is that the future is an extrapolation of what happened before, and the future is something that can be solved in a linear way. This assumption can be right – or it can be dead wrong.

Strategy is about where the puck is going to be, not where it has been [1].

From innovation we can learn that…

…we need to generate new data with experiments [2].

…strategy under uncertainty means that we need to apply methods for learning.

…while we perhaps cannot solve the future, we may be able to invent and design it.

In strategy under uncertainty, we need to learn something proprietary, something that nobody knows yet, something to gain competitive advantage. And we need to learn faster than everybody else – not what everybody is learning at the same rate. That’s why we need to establish experiments in strategy development and work with scenarios, formulate hypothesis, and test critical assumptions to forge solid strategic choice-making. Strategy is about anticipating market dynamics and solving for desirability, feasibility, and viability.

The future cannot be solved, but we can solve FOR the future.

• A Case in Point: Learning and Transforming

  In one example, a client in the med tech industry realized that in order to create lasting competitive advantage, their next generation devices would have to re-invent the current offering, transforming the company from a product-centric to a solution-oriented provider. That was the strategic insight and challenge ahead.

  To engage in a learning process and to create the necessary customer affinity, the client put together a cross-functional team (marketing, product management, domain experts, and R&D) and introduced design thinking together with lean startup methods as the guiding principles for their approach.

  The team co-located with customers across the globe to observe usage, inquire the context, and analyze real-world workflows and processes end-to-end to get a better understanding of deep frustrations and unaddressed problems. The generated insights provided the basis for the next generation solution.

  As an integrated part of the strategy process, the discovery and proprietary learning helped to inform the critical decisions about scope, capabilities, competitive positioning, and entry into different markets (US, Europe, Asia) to provide a winning and transformative strategy.

2. We need emergence to create new value

Strategy cannot be “executed”.

In sessions with business school students, I used to ask what they thought the biggest fallacy in management thinking was. There was never a lack of honest suggestions for this bleak category coming from a group of smart students.

I think one of the worst ideas in management, one that still causes much damage today, is the separation of strategy formulation and strategy execution. Why does it cause so much affliction?

The fundamental problem of the ill-advised concept is its sequential nature. It implies that strategy is a waterfall process: after the formulation has been completed, the so-called execution will be triggered (eventually).

It promotes a misguided view that after strategy formulation, no learning will be necessary, no uncertainties need to be met, no more choices have to be made, and no additional constraints need to be dealt with.

This is the waterfall problem: believing that we can separate strategy formulation from strategy execution. It is a dangerous fallacy because it is disconnected from reality. It is ineffective because it ignores that strategy ownership is needed across multiple levels of the organization to drive meaningful change. As sci-fi author Philip K. Dick wrote [3], “Reality denied comes back to haunt.”

Henry Mintzberg illustrated already in 1985 [4]: intended strategy, deliberate strategy, and realized strategy are an evolutionary path in an emergent reality.

Strategy is an ongoing journey that needs to embrace emergence to catch the next wave.

From innovation we can learn that…

…we need an agile approach that facilitates responding to change over following a plan.

…strategy needs to be an iterative and incremental development cycle.

…we need emergence – and leverage it – to create novel value.

Strategy cannot be executed because it is not a one-way street but a reciprocal development process. It involves decision making on many levels as well as alignment of the whole company/organization to create value and competitive advantage.

I would suggest getting rid of the word “execution” and call it “realization” instead. Strategies are realized through collective effort. That’s the mindset I would like to promote.

3. Great solutions come from thinking AND doing

Strategy cannot be “headquartered”.

To add insult to injury, there is another problem with separating strategy formulation from execution: the handover.

In many organizations, it's not the same people that formulate the strategy (the thinkers?) and those who are supposed to execute it (the doers?).

The term “headquarter” implies that there is a ‘head’ that does the thinking and a body (?) that executes the brain’s instructions. That’s a dreadful analogy for modern organizations, one that devalues its people.

Staying with this rigid picture means that there must be a handover of the strategy for execution. But what is handed over? In practice, for the most part, it will be goals and objectives. However, goals and objectives are not strategy.

• If you believe that strategy is the servant of goals, then finding ways to achieve goals is in fact strategy work. Therefore, the distinction between formulation and execution is misleading at best and destructive at its worst.

• If you believe that strategy is integrated choice-making, then reinforcing choices need to be made on different layers and in units where responsibilities reside. Therefore, strategy work cannot stop at the top.

• If you believe that strategic goals are to be substantiated, strategy work needs to happen on multiple levels and feedback must be incorporated to adapt and reinforce the choice cascade.

• If you believe that good strategic goals should be substantiated by the strategy process, strategy work needs to be a reality check with the purpose of adapting goals and finding a feasible way to achieve them.

A productive way to think about strategy development is the understanding that there are in fact various levels where strategy is made. Strategy is problem solving, design, and making choices on multiple levels and dimensions.

From innovation we can learn that…

…we need the intelligence and creativity of everybody to deal with complexity.

…we need customer affinity to deeply understand problems and solve them better than anybody else.

…we need a design approach for strategy development because great solutions for complex problems come from thinking and doing.

Strategy is a craft. Great designs are created by thinking AND doing.

4. Strategy starts with customers

Strategy cannot “disregard customers”.

Back in 2012, already a few months into my Global Executive MBA, I started asking professors when we will be talking about customers. Certainly, there is a lot to cover in such a program: finance, operations, organizational behavior, micro and macroeconomics, leadership, global management (and strategy, which however was primarily about competitive analysis in the beginning). It wasn't until the later courses in marketing, entrepreneurship, and advanced strategy when customers moved into focus.

Nevertheless, strategy starts with customers. The bad news: they are not under our control and make their own choices. We need to forge a compelling offering for customers to get them to act the way we would like them to – in alignment with our strategic ambition.

• A Case in Point: Missing out on Customers

  It is a warning sign to find so-called strategies that are neglecting customers. Unfortunately, this is not uncommon. For example, the Swiss bank Credit Suisse (before its collapse and acquisition by UBS) had in its 40-page “2022 Strategy Update” one mention of the word “customer” (in the disclaimer) and for the synonymous “clients”, it only had platitudes to spare like “Building a stronger bank around the needs of our clients” or “Ability to deliver tailored services to our clients”. To be fair, the document was at least clear and straight on their “key challenges”. Still, it was not a strategy that Credit Suisse presented but a restructuring program.

It’s about the value we create for our customers.

Why do customers not behave as we would like them to? Why do they not prefer our company and our offering, why don't they buy, upgrade, recommend, use our online channels, increase their share of wallet with us, and stay loyal to our brand? These are good questions... but they are all about us and what our company wants. And that is backwards.

Strategy is about the value we create for customers. It is about why customers are better off with your company and its products, services, and solutions.

From innovation we can learn that…

…it is about what customers want and adopt (and the reality-check is in the market).

…our offering – the value it creates for customers and how distinct it is positioned in the market – is the key to success.

…market risks will typically outweigh other uncertainties and that we need to test our assumptions accordingly.

Strategy is to convince the targeted customers to choose your company.

Summary

Towards Better Strategies

For a better approach to strategy development, here are 4 lessons inspired by the field of innovation.

1. Strategy is solving for the future, which is always in motion. Strategy under uncertainty means that we need to apply methods for learning. This is a key discipline in innovation methods (design thinking, experimental excellence, lean startup, etc.) that leaders should leverage for strategy development.

2. Strategy is an ongoing journey that needs to embrace emergence to catch the next wave. To create novel value, leaders should learn from innovation to embrace ambiguity, make sense of the situation and commit the organization when the time comes to turn uncertainty into opportunity. Strategies are realized (not executed) in an ongoing, reciprocal, joint effort.

3. Strategy is thinking and doing. Leaders should regard strategy as problem solving and design at scale. In that, “doing” is a reality check that informs the next iteration of “thinking”. Strategy is a craft that creates great designs. At scale, the approach needs to involve the organizational layers where strategy is made and aligned into a coherent strategy as a solution for complex problems.

4. Strategy starts with customers. Winning business strategies get customers to act the way you would like them to and convince them to choose your company. As leaders rise in organizations, they have the tendency to focus more inwards instead of outwards, losing customer-orientation over time. However, leaders responsible for strategy should always keep their focus on the value the company creates for customers.

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References

This article is a revised and extended version based on the series “IM_ Thinking – What can strategy learn from innovation”, 2022-2024.

[1] Inspired by Wayne G. Wayne Gretzky, former professional ice hockey player and head coach

[2] Experimental excellence, article by René Bach Lundgaard and Lasse Korsholm Poulsen, Implement Consulting, 2023

[3] Quote from the novel “Flow My Tears, the Policeman Said”, Philip K. Dick, 1974

[4] Of Strategies, Deliberate and Emergent, Henry Mintzberg and James A. Waters, Strategic Management Journal, 1985