Effective Innovation Begins With Strategic Direction

When speaking with global executives, we often ask them, “What’s one thing your company needs to improve?” Their word choice varies by region, but their response is usually the same: the ability to derive more value from their companies’ investments in innovation.

More often than not, the underlying problem is that innovation is assumed to be an end in itself rather than the mechanism for achieving a specific form of change. The impetus to innovate is independent from a strategic analysis of where and how innovation can improve the organization’s fit to purpose, or the quality of fit with the expectations of customers and other stakeholders; and its relative advantage, or its distinctiveness relative to alternatives. But most innovation advice given to leaders lacks the context necessary to guide their actions.

Improving returns from your innovation efforts requires knowing the type of change you want to achieve. Context matters. Is the strategic objective of your innovation primarily to strengthen the trajectory of your existing path? Or is the imperative to reimagine the tactics used to achieve your strategy because of the declining effectiveness of your current activities? Or is the objective of your innovation to fundamentally reinvent your business?

In this article, we identify the forms of innovation well suited for each of the three primary types of strategic change. A change of magnitude amplifies an existing strategy; a change of activity reconceives the tactics used to pursue a strategy; and a change of direction fundamentally reorients the strategy of the business.

Innovate to Enhance Magnitude

When you enjoy high fit to purpose and relative advantage, the primary goal of innovation is to develop ways to enhance your existing trajectory and perceptions. This does not equate to complacency or a lack of boldness; change is required, but it should align with the existing momentum of the business so as to further strengthen what makes it relevant and distinctive to existing customers and what is attractive to new customers.

In previous years, Walmart committed to innovation that reduced friction in the consumer purchase experience and improved recurring revenue — an investment that prepared it to provide next-day delivery to 75% of the U.S. population during the COVID-19 pandemic. Danish global shipping company Maersk embraced blockchain to accelerate the previously time-intensive tasks involved in locating shipping containers.