A Sustainable Enterprise-Level Approach To Innovation (Part 1)

Gerrit Kotze

Part 1 of the four-part series “System of Innovation

In today’s increasingly competitive market, companies face a sobering choice: make change or be changed. Those that make change have a sustainable system of innovation to gain a game-changing advantage to outperform their competitors. However, for most organizations, this is easier said than done.

It’s time for a better system of innovation that can help your business bring new products and services to market with greater speed, efficiency, and consistency. In the first installment of this four-part series, we’ll explore the creation of an innovation strategy.

Innovation Strategy Execution Approach

The Framework for Strategic Innovation

How to build a solid innovation strategy

Enterprise-level success demands innovation as an integral part of executing the business strategy, not disconnected tactical initiatives. Think about it: being strategic requires the ability to model the future, and innovation is about creating the future. With this line of thinking, innovation is clearly an instrument of strategy because it is an essential creator of future organizational value.

Businesses tend to evolve in response to new pressures from global and local forces, competitive activity, and the continuous emergence of new regulations. Your organization can continue with the same processes, behaviors, and mindsets and remain successful if these factors do not shift. However, knowing the accelerating pace of change in the world and marketplace, you should act sooner than later to help ensure existing products, services, and experiences remain relevant for the long term.

The critical starting point for strategic and sustainable innovation is answering the question: Why do we need innovation to help execute our business strategy?  This calls for more than just answering a survey or engaging in discussions with business leaders. In fact, it is a four-step process of understanding context, establishing detailed objectives, and formulating the innovation strategy.

1. Know the external context of digitalization

All organizations are subject to the global forces that drive change – one of which is digitalization. As a significant influencer of consumer expectations, digitalization – like many other global forces – offers a competitive opportunity when leveraged well or poses a disruptive risk when ignored.

The term “digitalization” refers to the convergence of data and technology. While information has always been around, information is increasingly captured and converted into an electronic format. Most people are now aware that available data is proliferating, and technology is the enabler that captures, analyzes, interprets, enriches, transforms, represents, and visualizes that data to generate predictions, recommendations, and actions.

By using in-depth industry trend reports and detailed benchmark data, you can review the global market, industry subsector, and global drivers. This step helps you understand macroeconomic and market conditions to determine whether your innovation can adequately deliver on your business’s expectations.

2. Become informed about the internal context of digitalization

Before you can set your goals and targets, you should understand where you are starting.  What are your current level of capabilities and capacities? An innovation audit helps baseline your business’ digital and innovation maturity so you can develop an enablement plan that supports the innovation strategy.

Take, for example, a sports apparel company that wanted to expand its retail footprint. Its approach requires an understanding of what it can do on its own and at what pace – its capacity. It started a partnership with a customer (a reseller of its products) to leverage economies of scale. Then it invested first into its own chain of wholesale stores to generate high turnover and then into its own retail stores to generate higher margins. Finally, it set up its own online channels.

After some time, the scale of the apparel company’s strategy presented a common problem: lack of sufficient capacity within its workforce to keep the business model operational. While it is critical to review the performance of every retail channel to determine the best way to evolve the retail strategy, the real question is even more fundamental . . . how can innovation help?

3. Define goals and a clear target state

When companies set ambitious strategic goals, they are typically focused on growth. Key goals may include:

  • Double product turnover within three years
  • Expand the number of retail or wholesale stores in a specific country and internationally
  • Converge physical and e-commerce to an omnichannel approach
  • Grow product categories to deliver on a wider variety of consumer needs

The challenge at this stage is to work out how innovation helps deliver the strategic goals to grow revenue, margin, and coverage. For retailers, digitization offers a capability step-up in their quest to gain consumer intimacy. While rolling out more stores does not require any innovation, achieving these business goals does.

4. Formulate an innovation strategy

Finally, you need to prepare a realistic execution to fully harness the market opportunity while mitigating the risk. By jointly defining the innovation strategy with data and digital technology, you can open the business up to tremendous capabilities that can set a path to future success.

For instance, you can drive the brand into new markets, gain consumer insight, influence future product and service designs, create a business network, and predict consumer needs in advance to offer more personalized service. A sports apparel company, for example, may define its innovation strategy to leverage technology and expand its brand and use data to gain consumer insight to create new products, services, and customer and consumer experiences.

The next step: Set up your innovation portfolio

Once you determine why you need innovation and, from that, your innovation strategy, the business expectations around the prospect of innovation will most likely be high. But don’t worry, this anticipatory energy is understandable considering the investment of time, money, resources, and capabilities needed to bring your strategy to life.

In the next article, we will discuss how you can move your newly formed innovation strategy forward by determining what you need to innovate in and design an innovation portfolio.

For an example of doing it right, see How IKEA Builds Sustainable Innovation Into Its Business Model To Improve Lives.

Gerrit Kotze

About Gerrit Kotze

Gerrit Kotze is the head of Business Transformation Services North America for the South Region at SAP. He works closely with chief officers and business executives on strategic initiatives in innovation, transformation, and optimization. Recently he spent two years leading innovation on behalf of SAP at global sporting goods retailers. Gerrit draws on 20 years of business consulting and SAP experience in both Europe and the U.S., working with leading global organizations as well as leveraging insights, experience, and benchmarks from thousands of SAP customers. Gerrit was a member of the SAP Executive Advisory Board for User Experience.