Innovation Strategy: Learn how to go from Innovation Theater to Growth Engine

How can leaders and teams close the gap between innovation aspirations and innovation capabilities?

Innovation success is repeatable and scalable with the right system. Companies must move beyond the occasional launch of one or two successful innovations, many of which rely on luck.

To remain competitive, leaders need to develop innovation as a key organizational muscle and overcome innovation theater. By the time a crisis arrives, it is too late to start exercising it.

Truly great companies find a way to balance the reliability of proven methods with the excitement and potential of new ideas. Invincible companies use tools like Portfolio Maps in order to visualize the workstreams of each process.

To learn firsthand from our experts, check out our virtual masterclass: Building Invincible Companies

No company is invincible.

While this is technically true, it doesn't mean you shouldn't aspire to become one. Striving to create an invincible company will allow you to support, improve, and scale up all the things that make you successful, while mitigating risks and disruptions.

Even if truly invincible companies are a hypothetical, all good companies should try to achieve some measure of invincibility. Those that come closest are the ones that constantly reinvent themselves before it becomes obsolete.

An invincible company:

explores the future, while excelling at exploiting the present.
cultivates an innovation and execution culture that lives in harmony under the same roof
competes on superior business models and transcends traditional industry boundaries

How to become an Invincible Company…

Business Model History

Where did the term business model even come from?

1994

The search to define what a business actually goes as far back as 1994, when Peter Drucker introduced the theory of the business was a set of assumptions about what a business will and won’t do in an article for the Harvard Business Review. He speaks about how companies fail to keep up with changing market conditions, as well as their duty to identify customers and competitors, their values and behaviour. Now considering that we've had businesses for over hundreds of years - it's pretty remarkable we only just came up with the term 'business model' a few decades ago!

2002

In the middle of the 2002 dot com crisis, Joan Magretta built on Drucker’s business definition to exclaim that business models are “at heart, stories. Stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions: ‘Who is the customer? And what does the customer value?'

The shift from a business plan to business model goes hand-in-hand with the rise of personal computers and the use of spreadsheets. Entrepreneurs used to plan their businesses year by year, quarter by quarter, and write it down in a document almost like a book who’s copy is final. The change occurred hand in hand alongside the introduction of powerful new technology such as Microsoft Excel, enabling people to model them digitally and more accurately. Being able to calculate your entire profit and loss for a business was now available to you on a single Microsoft Excel page. This now meant businesses could be modelled before they were actually launched. Products or services could be done ahead of time in terms of calculating the business' recurring revenue, profit, marketing costs, advertising spend etc. in order to model the framework of the business.

2005

This change in approach prompted the likes of Alexander Osterwalder and Yves Pigneur to invent the Business Model Canvas in 2005, the first ever visual business tool of its kind. Long gone are the days of having to come up with a long & highly unrealistic business plan, trying to predict what product or service you'll be selling at the company five years from now!

Transcend Industry Boundaries

The most successful organizations aren’t confined by industry boundaries or industry forces. In fact, they often crush industry boundaries and disrupt others.

Their business model or portfolio of businesses is not the result of the area they work in; it comes from an organization that constantly explores new ways to create value around market opportunities.

Invincible Companies do not prioritize exploitation over exploration. They are world-class at simultaneously managing the entire continuum; from exploring new businesses to exploiting existing ones.

They keep a culture of “day one”, maintaining a start-up spirit, while managing thousands or even hundreds of thousands of people and multi billion-dollar businesses. Increasingly, this ability to manage exploration and exploitation is not just limited to large established companies. It is also a matter of survival for SMEs and start-ups with the shortening lifespan of business models across industries.

From Innovation Theater to Growth Engine

The majority of leaders rank innovation as one of their top three priorities.
Yet, growth from innovation rarely live up to expectations. There is still a gap between innovation aspirations and organizational capabilities.
Download the Innovation Playbook to Learn how to assess and improve your company’s ecosystem to drive world class innovation:

The Exploit portfolio is about keeping your existing business models on a growth trajectory.

This includes:

scaling emerging business models
renovating models on the decline
and protecting those that are successful

You ensure growth by improving returns and minimizing disruption risk.

This is best achieved by shifting all of your business models to an updated and more holistic approach.

Good management includes taking action to design and maintain a balanced portfolio that protects you from disruption.

This includes continuously growing and improving existing business models by shifting outdated to new business models and protecting those that are established. It also includes exploring completely new business models, of which many will fail, but some will produce outsized returns and ensure your future.

In order to design and maintain a strong portfolio, you need to provide a clear innovation strategy. This will define where to play and how to win, so your portfolio can have a clear direction and context.

We call this your Portfolio Guidance

Your portfolio guidance helps you define the resource allocation and portfolio actions. It provides explicit boundaries to understand what to focus on and what not to, where to invest and where to divest, or what to explore and what not to explore. In essence, it is a playbook for repeatable and sustainable success.

It should consists of:

Fundamentally, your two portfolios are very distinct and should be managed differently. How you choose to manage them will be shaped by the kind of innovation your organization wants to pursue.

Often the most difficult to successfully implement, Transformational Innovation requires a lot of resources and time. This type of innovation can be useful for reinventing a product or launching something new, and is often done with the intention of creating something long-term.

Transformational innovation is most frequently seen in large companies that have the capacity to handle failure. Having a safety net in case of a botched product launch can prevent severe damage to your revenue and reputation, so it's important to have a fallback in case your new project is a bust.

Companies that engage in transformational innovation usually have innovation teams separate from the business units, providing them with the autonomy that they need without diverting resources from proven successes.

Sustaining innovation is all about supporting your existing products and services.

This method focuses on:

developing supplementary products
integrations
growing existing markets

As this method takes advantage of existing product success, there is very little risk involved. The work is often less strenuous, as your team is building on something, rather than starting from scratch.

Sustaining innovations can help to keep a product in the public eye for longer periods, provide an edge against competitors, and can help to further optimize great products.

This method of innovation calls for a dedicated team that is strongly supported by development and business departments in order to get the most complete and clear insights on their product.

This innovation method focuses on improving your company's business model.

This doesn't mean you start reworking the entire plan, simply that you find ways to improve processes and cut down on blockers.

These process innovations can range from sweeping reforms to small housekeeping habits, and often have an immediate impact. Since these innovations help to improve existing products, the risks are very low, and you can often accurately predict project outcomes.

Efficiency innovation is certainly a worthwhile endeavor for any company, but it does little to position a business for future successes, as it relies on existing work. This form of innovation can occur anywhere in the business.

For exploration, adopt a more venture capital-style investment approach, as opposed to the relatively rigid annual budgeting cycles practiced in Exploit projects.

The enemy of innovation is the business plan

Companies that still require business plans from project teams maximize the risk of failure.

The business plan is a document that describes an idea and its execution in detail. This drastically increases the risk of executing an unproven idea that only looks good on paper and in spreadsheets.

Conversely, innovation is about admitting risk and uncertainty. It is about iterating and adapting ideas based on evidence from experiments until they are likely to work. This minimizes the risk of executing a flawed idea

Here, we outline four key principles to manage your innovation portfolio:

Metered funding means Increasing your bets incrementally and providing follow-up funding when evidence from experiments suggest risk reduction and real-world project potential.

In the start-up and venture world, risk and uncertainty are acknowledged as investments and are spread over a portfolio of projects. Combining multiple small bets with metered funding equips teams with capital over a series of rounds.

With metered funding, only the ideas with traction are retained and get follow-up funding to continue. In other words, a large number of ideas obtain small amounts of money to get started. Ideas that don’t work or project teams that don’t have it in them are weeded out

An important aspect of funding like a venture capitalist is the constitution of an investment committee that is dedicated to growth and innovation.

It’s crucial to create a dedicated committee, because the investment logic and investment style substantially differ from investments in execution projects.

The committee should be composed of a small number of leaders who have decision making authority when it comes to the budget. Ideally, it includes both members who are fully dedicated to exploration, as well as members who are more preoccupied with exploitation.

Investment decisions usually take place every 3 to 6 months, depending on the type of organization. Investments are mainly in internal teams, but may also include start-ups.

What are the key activities of a growth and investment committee?

In the discovery phase, you invest small amounts of money into a large number of tiny teams to explore ideas.

The key components of the Discovery Phase are customer understanding, customer centric value proposition and their willingness to pay.

The Discovery Phase is where you begin to reduce risk through testing:

Initial evidence indicates that customers care about what you intend to address (desirability)
Further evidence typically indicates customer willingness to pay (viability)

Discovery prototypes at this stage do not need technical skills. Examples are storyboards, videos, and mock brochures.

In validation, you increase your investment in those 30% to 50% of the teams that produced evidence during discovery.

The key components of the Validation Phase are proven interest and indications of profitability

At this stage, you search for more solid evidence that shows interest for your products and services (desirability).

Common methods of assessing desirability are:

Primary/initial mock sales or letters of intent signal how much customers will pay (viability)
Primary/initial evidence of the required cost structure indicates expected profitability (viability)
Technical prototypes suggest that you can manage activities and resources (feasibility)

In acceleration, you continue to trim your portfolio and once again invest in only 30% to 50% of the teams.

The key component of the Acceleration phase are proven model at limited scale

At this stage, you aim for a working prototype or initial products and services to test your value proposition in a limited market. You are searching for evidence that shows that you can create and deliver customer value at a limited scale and with a profit.

Your search for evidence is designed to justify larger investments to scale customer acquisition and retention, and to test profitability at scale.

Business R&D are the activities a company undertakes to spot, create, test, de-risk, and invest in a portfolio of novel business opportunities. Opportunities range from improving the existing business(es) to exploring radically new ones.

The heart of business R&D is the art and science of shaping value propositions and business models, as well as the identification and testing of desirability, feasibility, viability, and adaptability risks for each opportunity.

It complements traditional technology and product R&D, which mainly focus on feasibility.

This is the activity of scanning the environment for promising opportunities to improve the existing business or to explore completely new ones.

Opportunities may come from:

shifting customer needs
technology innovations
regulatory changes
societal trends
the acquisition of competitors
start-ups
complementary organizations

Download our Card Deck to conduct your own business environment scan

Business Design Loop

In the design loop, you shape and reshape your business idea to turn it into the best possible business model. Your first iterations are based on your intuition and starting point (product idea, technology, market opportunity, etc.). Subsequent iterations are based on evidence and insights from the testing loop.

Ideate

In this first step, you try to come up with as many alternative ways as possible to use your initial intuition or insights from testing to turn your idea into a stronger business. At this stage, it’s important to not fall in love with your first ideas.

Business Prototype

In this second step, you narrow down the alternatives from ideation with business prototypes. When you start out, you might use rough prototypes like napkin sketches.

Subsequently, use the Value Proposition Canvas and Business Model Canvas to make your ideas clear and tangible. You constantly improve your business prototypes in future iterations with insights from testing.

Assess

In this last step of the design loop, you assess the design of your business prototypes with the Questions for Leaders assessment sheet . Once you are satisfied with the design of your business prototypes, you can start testing in the field or go back to testing if you are working on subsequent iterations.

Test Loop

Every (radically) new business idea, product, service, value proposition, business model, or strategy requires a leap of faith. If proven false, these important and yet unproven aspects of your idea can make or break your business.

That’s why it’s important to break down your idea into smaller chunks that you can test. You achieve this by making the uncertainty and assumptions underlying your idea explicit in the form of hypotheses. Then, you prioritize these hypotheses to test the most important ones.

Hypothesize

The first step of testing a business idea is to understand the risks and uncertainty of an idea. Ask: “What are all the things that need to be true for this idea to work?”

This question allows you to make the assumptions underlying an idea explicit in the form of testable hypotheses. In other words, you break down a big idea into smaller, testable pieces.

Experiment

To reduce the risk and uncertainty of your ideas, it’s not sufficient to make your hypotheses explicit.

Don’t make the mistake of executing business ideas without evidence.

Test your ideas thoroughly with experiments, regardless of how great they may seem in theory. This second step will prevent you from pursuing ideas that look good in theory, but won’t work in reality.

Learn

In this last step of the testing process, you analyze the evidence from experiments in order to support or refute your hypothesis. Your insights will inform your decision to persevere with, pivot, or kill your idea.

Business Environment Map

A foresight and scanning tool to map the environment in which you conduct business. It captures the trends that might disrupt your organization, or represent new opportunities for growth and transformation.

Business Model Canvas

A strategic management tool to make explicit how you create, deliver, and capture value at the business level. Used to improve existing business models or invent new ones. Serves as the foundation to identify hypotheses to test new business ideas.

Value Proposition Canvas

A product management tool to make explicit how you create value for customers. Used to assess and improve existing value propositions or to invent new ones. Serves as the foundation to identify customer and product/service hypotheses.

Business Model Patterns Library

These are a series of repeatable configurations of different business model building blocks in order to strengthen an organization’s overall business model.

We have codified them into a series of patterns to help you think through how to compete against superior business models beyond the traditional means such as product, service or price.

The best business models incorporate several patterns to outcompete others.

Assessment Questions for Leaders

Assess your existing and new business models with the Assessment Questions for Leaders. Visualize your strengths and weaknesses and unearth opportunities with the resulting score.

No business model achieves a perfect score. Simply be conscious about where you score well and where you don’t, and use the trigger questions continuously to spark ideas of improvements.

Today’s rapidly changing business environment has revealed the challenges that companies deal with when facing change and disruption. Leaders more and more understand and see the value of innovation with a majority of them now ranking innovation as one of their top three priorities.

Unfortunately, there is a gap between innovation aspirations and organizational capabilities. Results in terms of growth from innovation rarely live up to expectations. This, despite an abundance of innovation activities.

To bridge this gap and achieve results, we believe the right ecosystem can make innovation success repeatable and scalable.

These are the three pillars to drive innovation with tangible results

Innovation portfolio composition matters. It is what drives long term growth. Build a diversified innovation portfolio that aligns with your overall strategy. Systematically produce winning ideas and teams from efficiency, to sustaining, to growth innovation.

We work with leaders to help them make conscious and strategic portfolio allocation decisions. Our visual tools make these choices explicit. We help leaders understand where they are now and what’s missing, so they can make informed decisions about what to do next.

Using the Portfolio Map, we facilitate the assessment and design of the right innovation portfolio by asking some fundamental questions.

When assessing the portfolio

What does your innovation portfolio look like today?
What is your mix of efficiency, sustaining and transformative innovation projects?
Do you have an innovation funnel with multiple business ideas in it?
What is the average size of the investments you are making at the beginning of innovation projects?

When evaluating the portfolio

Now that you have seen what it really looks like, are you happy with the balance of your innovation portfolio?
Do you think that your current portfolio will help your company continue to succeed with current market trends and changes?
Are there any “zombie” projects that should be killed off?

When setting portfolio aspirations

What would you like your innovation portfolio to look like?
If you were to rebalance your portfolio, how would you prioritize your investments in efficiency, sustaining and transformative innovation projects?

Innovation programs can be a powerful driver of culture change and value creation. Shift from mere innovation activities to strategically integrated programs that predictably deliver results. Great innovation programs shift mindsets and reliably generate the growth for which you plan.

We work with leaders to help them evaluate the performance of their current programs based on our expertise. We then support them in designing strategically integrated programs. This consists of improving, retiring, or adding completely new programs to their ecosystem.

We facilitate the assessment and design of strategically integrated innovation programs by evaluating each program’s performance in terms of its ability to achieve:

value creation (i.e. revenue/profit)
culture change (i.e. structure/processes)

The right culture is the foundation for a repeatable and scalable innovation ecosystem. Invincible Companies actively understand, design, and manage culture. They create world-class innovation and execution cultures that live in harmony.

Driving cultural change is the key role of a company’s leadership. We work with leaders to help them evaluate their culture based on our expertise. We then support them in removing innovation blockers and designing innovation enablers.

Using the Culture Map, we facilitate the assessment and design of the right innovation culture to drive repeatable innovation.

To build an exploration culture, leaders need to understand how innovation works and then invest a substantial amount of their time into innovation. They provide clear, strategic guidance for innovation projects and regularly review a company-wide Exploit and Explore portfolio.

Innovation leaders are eager to explore new growth opportunities and understand how the related risk is managed.

Strategic Guidance

In companies with clear strategic innovation guidance, leadership communicates the strategy at important meetings at least once a quarter.

The innovation guidance is completely aligned with the overall strategy and is widely understood across the organization. Good examples of clear guidance are Amazon and Ping An.

Resource Allocation

In Invincible Companies, resources for innovation are institutionalized and leaders commit an important proportion of their time to innovation.

Resources include:

Leadership Time: In companies that innovate, the CEO or a co-CEO invests 50% or more of their time on innovation. A great example is Bracken Darrell, CEO of Logitech or Ping an’s co-CEO Jessica Tan.

Innovation Funds: Money that is invested in internal and external innovation teams that start with small bets and get follow-up investments based on evidence. These funds differ from R&D investments.

Innovation Core Team: a team of professional and experienced innovators who lead projects or coach project teams across an organization.

Time: One of the scarcest resources in organizations is time. Systematically testing and de-risking ideas requires a substantial time investment from project teams.

Prototyping resources: Innovation teams run experiments and need access to resources for physical or digital prototypes, graphic design, videographers, and so on.

Access to Customers, Brand, and Skills: Innovation teams need access to resources controlled by the core business. Testing requires access to customers, the use of the company brand, and often other skills and resources of the core business.

Portfolio Management

In Invincible Companies, leadership is eager to pioneer. Leaders invest in a large innovation pipeline of small bets of which the best get follow-up investments. The portfolio covers the whole range of exploration, from efficiency innovation to breakthrough growth innovation.

In Organizations with an exploration culture, nobody gets in trouble for experimenting with new growth opportunities that fit the strategy.

You find innovation on the agenda of the most important meetings, and people choose innovation as a career path. Innovators understand the constraints of leaders and managers of the existing business and they, in return, do their best to help innovators.

Exploration and execution form a true partnership to manage the present and explore the future.

Legitimacy and Power

Companies that can repeatedly produce tangible innovation results ( like Amazon or Ping An) give innovation power and legitimacy. To have an impact, innovation needs to feature in the organizational chart, and at the very top.

Either the CEO, a co-CEO, or somebody reporting directly to the board needs to be responsible for growth and innovation, as well as spend serious time and energy on it.

Talking about it at the top level is not enough.

Unfortunately, innovation still lacks legitimacy and power in most organizations. We see a lot of heads of innovation who are two to three levels down in the org chart. They are the sub-department

of a leader who is the sub-department of another leader — guess how much impact that creates?

When growth and innovation lack power and legitimacy, that sends a very strong signal to the company and often leads to severe consequences with long-term impact:

Innovation is not prestigious and it’s not seen as a priority, so everybody puts it at the bottom of their to-do list.
People avoid exploring new ideas, because they fear taking risks and damaging their careers.
Promising innovation projects remain vulnerable and get killed by the blockers in the organization, because innovation is not perceived as crucial. Few of them get scaled, because the short-term agenda prevails.
Your best talent doesn’t choose innovation as a career path and either leaves to go to the competition or to start-ups.

Bridge to the Core

In Invincible Companies, Explore and Exploit operate as equal partners that live in harmony. There are clear policies that help innovation teams and the core business collaborate. Innovators get easy access to valuable resources from the core.

When there is no clear bridge to the core, innovation teams have only limited, conflicting, or no access to customers, resources, and skills of the core business.

In the worst case, innovation projects are blocked from getting access to what they need to explore and test ideas.

They basically have to operate like a start-up in chains: with the same limited resources as start-ups, but without the impetus.

We therefore advocate for a so-called Chief Internal Ambassador and a supporting team who explicitly manage the relationship between Exploit and Explore on behalf of the CEO or the board.

Rewards and Incentives

In our advisory work, we often hear that the drive to innovate is intrinsic to innovators and entrepreneurs.

Imagine an innovator who gets punished every time they try something out that was not in the plan. Now, imagine an innovator who repeatedly creates new multimillion-dollar businesses for an organization and gets rewarded with promotions and pay raises.

Will they perform to the very best of their innovation talent?

Will they stay at your organization?

We argue that a dual strategy to reward and incentivize works best. First and foremost, eliminate all the downsides that prevent innovators from innovating in your organization. Once you’ve achieved that, develop a reward system for innovation.

Innovators pursue ideas based on evidence from experiments, not their opinions or their boss’s opinions. Risk and uncertainty of ideas are systematically measured, and projects start with cheap and quick experiments.

Experiment time and costs increased with supporting evidence and decreasing uncertainty. People accumulate skills over years of practice and learn and grow from failures in any projects.

Tools & Resources

Innovation professionals need to master a set of dedicated tools, just like a surgeon commands a set of operating tools. We believe the quality of the innovation toolset you use has a substantial impact on the quality of your growth and transformation work.

Tools are not neutral.

They heavily influence the quality of your results. That’s why it’s incredibly important to carefully select the tools you use and learn how to apply them correctly.

Process Management

Invincible companies have dedicated processes and decision-making that are both optimized for innovation. They measure the systematic and effective reduction of risk in new ideas, rather than on-time and on-budget delivery, which are typical execution KPIs.

Skills Development

Managing the existing and inventing the new are two fundamentally different professions.

Innovators are typically comfortable with high uncertainty and radical pivots to adapt to the reality of new market insights. Invincible companies systematically develop world-class innovation talent with extensive innovation experience across the organization.

Speak to an Innovation Expert

Schedule a quick call to evaluate where you are and see if we can help:

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Determine how Strategyzer tools, methodologies and training can help you transform your business model

Innovation Strategy:

Learn how to make your innovation strategy successful, repeatable, and scalable with the right systems.

From Innovation Theater to Growth Engine

Chasing Invincibility

Business Model History

1994

2002

2005

Three characteristics of an Invincible Company

From Innovation Theater to Growth Engine

Portfolio Management

Explore: search

Exploit: grow

The Portfolio Map

Using The Portfolio Map

The Strategic Guidance Framework

Assessment Questions for Leaders

The Business Model Portfolio

BIC Book

Portfolio Guidance

Three Types of Innovation

Transformational Innovation

Sustaining Innovation

Efficiency Innovation

How do you systemically drive exploration?

Invest Like a Venture Capitalist

You can’t pick the winner

Multiple Small Bets

Metered Funding

Portfolio Return

Subscription Business Model

How do you apply these four investment principles?

Growth and Innovation Investment Committee

Project guidance and investment guidelines

Portfolio Management Approach

Evidence-based investments

Project team support and protection

Encourage innovation behavior, not just outcomes

Growth Portfolio

Discovery Phase

Validation Phase

Acceleration Phase

How do you move from one phase to the next?

Business R&D

Differs from traditional R&D

The main business R&D tasks include:

Identification of Opportunities

Shaping, Testing, and Adapting Value Propositions and Business Models

Portfolio Management

Innovation Tools

Business Design Tools

Assessment Tools

Test & Learn Tools

Tracking Tools

Innovation Skills

Business Design

Masterclass: Building Invincible Companies

Mastering Business Models

Testing (and Learning)

Lead and Execute

Dollar Shave Club

How do you make innovation sustainable and repeatable

Innovation Ecosystem

A strong innovation portfolio

Strategically aligned innovation programs

A company-wide innovation culture

From Innovation Theater to Growth Engine

Innovation Culture

Leadership Support

Organizational-design

Innovation practice

Speak to an Innovation Expert

Mastering Business Models

Masterclass: Building Invincible Companies

Business model tools and resources