Strategic Innovation

A new era of strategic innovation is emerging. The realization of many leading organizations is that approaches to innovation that have worked well in the past decade are becoming increasingly strained as organizations deal with vaster amounts of knowledge, increasing complexity, and an accelerating pace of both technology creation and societal interactions and demands. The approaches that have effectively propelled leading organizations to become engines of innovation are in need of an overhaul. This is not to say that what has been created over the past couple decades is not valuable. Methods such as Stage-gate based New Product Development (NPD) processes, Voice-of-the-Customer (VoC), Open Innovation systems etc. are still, and will remain, extremely valuable and necessary. But these tried and true tools are increasingly being relegated to the Tactical Innovation needs of an organization. They are the table stakes that are necessary, but not sufficient, for organizations to remain in the game but they are becoming more and more ill-suited to address the Strategic Innovation needs that drive future growth.

Before exploring what new processes, methods and tools will be needed to address strategic innovation needs, it is useful to define exactly what is meant by Strategic Innovation. In some sense, all innovation is strategic, if an organization is not innovating it will die, but not all innovations are strategic. Most innovations a typical organization creates are in service of existing businesses and business models and are well within the corporate culture and capabilities. Their creation is a tactical component of a corporate strategy, but, in most cases, they cannot be called strategic in and of themselves. A strategic innovation is something else and by defining what that something else is, new means of achieving strategic innovation can be realized.

The ‘Adjacent Possible’

The difference between incremental and disruptive (e.g. breakthrough, radical, transformational etc.) innovation is widely recognized and accepted. But while the distinction between incremental and disruptive innovation is valuable and instructive, it does not go far enough in illuminating the key factors that influence how an innovation is conceived and realized by a complex organization functioning in a complex ecosystem. In addition, the widely used Ansoff Matrix and its many derivatives do not sufficiently capture the relevant distinctions between different types of innovation initiatives and opportunities.  It is no longer enough just to note the simple distinction between incremental and breakthrough innovations or use an Ansoff matrix to categorize a portfolio of opportunities. A new perspective is needed.

Stuart Kauffman first introduced the term ‘adjacent possible’ in his book Investigations and Stephen Johnson made the term popular in his book ‘Where Good Ideas Come From’. The concept of the adjacent possible is that the area of most activity, creativity and adoption is the area that is immediately adjacent to the current, not the area that is either well-in-hand or the area that is a far leap. Technology, economy, and society most often advance by moving into areas that are adjacent to the here-and-now. If one pushes things too far, too fast, one will most often be rejected, not because it is wrong, but because the relevant community is not ready to accept it, it is too different.

While Kauffman and Johnson both used the term ‘adjacent possible’ to apply to technology, the term can be equally applied to organizations. An organization is a collection of processes, or rule sets, written and unwritten that govern the behavior of agents within the organization. These rule sets are what determine the organization’s culture and overall behavior both within itself and with other, outside organizations and agents.

This perspective gives rise to a view of an organization’s ‘adjacent possible’ being measured along two dimensions. One dimension is called the ‘core – horizon’ dimension and the other is called the ‘incremental – disruptive’ dimension’. The following figure depicts this ‘Innovation Opportunity Canvas (IOC) and the adjacent possible boundary.

Basic SI Canvas

Figure 1 – The Innovation Opportunity Canvas

The Innovation Opportunity Canvas (IOC) is determined by an opportunity’s newness to the market, or the degree of external disruption, as well as by an opportunity’s newness to the company, or degree of internal harmony. The area at the lower left is the area of ‘comfort’ where all new opportunities are within reason. The blue area to the upper right is the area of discomfort where new opportunities are a stretch, a leap or ‘discontinuous’ either internally, externally or both. The boundary between the spaces can be called the ‘possibility boundary’ and represents the extent to which an organization is willing to pursue, both internally and externally, new opportunities.

The market external dimension

Incremental: Opportunities in markets that are small, low risk and have value that can be clearly calculated because the dimensions of experience are well known.

Disruptive:                 Opportunities that are new-to-world and push beyond existing design and/or demand boundaries.

The company internal dimension.

Core:             What is familiar, known, and compatible with current businesses and business models. What is within current capabilities. The dimensions of analysis are known and available.

Horizon:      What is unfamiliar and/or incompatible with existing businesses and business models. The dimensions of analysis are unknown and need to be developed.

The Y axis is the external dimension. This dimension captures what is new to the world and what is new to a market (note: things can be new to a market that are not new to the world but not vice-versa). This dimension is measured by an opportunity’s characteristics in both demand and design. In other words, how disruptive is a new opportunity in changing demand dynamics (i.e. creating a new demand paradigm like Apple’s iTunes did) and in changing design experiences (i.e. creating a new form, function or performance level paradigm like Amazon’s Kindle did).

The X axis is the internal dimension. This dimension captures what is new to the organization. This dimension is measured by an opportunity’s characteristics as it intersects with both the culture and capabilities of an organization.

Of course, every organization’s possibility boundary is different and the boundary isn’t really a sharp dividing line but a zone as shown in the following figure.

SI Canvas Boundary & Zone

Figure 2 – The Possibility Zone is Organization Specific

A significant effort on the part of any organization is figuring out their boundary (and their competitor’s boundary).

An interesting result of this perspective is the realization that companies can be quite comfortable even introducing disruptive innovations if they are near to their core and they can feel quite uncomfortable introducing incremental innovations far from their core. Examples of these two situations are numerous:

  • Disruptive near to the core – companies that change their industry by introducing an innovation that is new to the world and that requires significant changes in the customer’s behavior. An example of this would be the development and introduction of electric vehicles by automotive OEMs
  • Incremental outside the core – companies that introduce an equivalent product that is beyond their ‘normal’ capabilities or business model – what is commonly called the fast-follower. An example of this would be Google Music. When Apple introduced iTunes, it was both disruptive and horizon. Google’s follow-on offering brings very little additional to the experience but it is a horizon effort by Google. Another example is Amazon’s elastic compute cloud service EC2. Not especially disruptive, but it certainly was on their horizon.

The advantage of looking at the organization and its innovative efforts in this way, as opposed to the more traditional Ansoff 2 X 2 matrix, is that this Innovation Opportunity Canvas (IOC) explicitly separates internal and external factors and therefor is a means of illuminating what Christensen (The Innovators Dilemma), and many others have articulated about internal barriers to innovation. The main advantage of the IOC is, though, to define an organization’s strategic innovation zone.

The Strategic Innovation Zone

The region at the boundary of an organization’s demand and design reach and it’s culture and capabilities reach is the zone of an organization’s ‘adjacent possible’ and is the realm where strategic opportunities are designed. It is the strategic zone of the adjacent possible. This is the zone where the most valuable innovation takes place – strategic innovation.

SI Canvas Zones

Figure 3 – The strategic zone of the adjacent possible.

Innovating in the strategic zone results in non-incremental, new-to-the-world opportunities that push an organization beyond its core offerings and its core markets or channels. It is the zone that requires new design or demand capabilities and the zone that begs for new ways to exploit it – for new processes, methods and tools and for new organizational capabilities.

There are many examples of new opportunities that fall within this zone. Perhaps the most archetypical example is Apple’s introductions of the iPod, iTunes, iPhone and iPad. Each of these pushed both the new to the world/market boundary towards the disruptive and the company/organization boundary toward the horizon. Indeed, one of the probable reasons that Apple is so highly admired as an innovative company is that their adjacent possible zone of strategic innovation is so far out along both dimensions of the IOC. They are willing, time and again, to introduce disruptive offerings that are outside their current business model. Other companies then follow.

Strategic Initiatives and Opportunities

A Strategic Innovation Initiative (SII) is an organized activity specifically designed for an organization’s strategic innovation zone. An organization that wishes to find and pursue opportunities within this zone should set up a system to undertake a consistent and on-going process that result in new strategic opportunities. This strategic innovation process accomplishes the following.

  • Finds and defines the organization’s strategic innovation zone – determines both the market boundaries and the organizational boundaries that exist, both explicitly and tacitly within the organization and that can be pushed to achieve new strategic opportunities.
  • Explores and exploits the strategic innovation zone – finds opportunities within the zone and develops and delivers new offerings that address them
  • Expands and enhances the strategic innovation zone – constantly pushes the organization’s boundaries outward through both demand/design and culture/capability development

Strategic Innovation Initiatives demand new processes, methods and tools specifically designed for these purposes. While well suited to the zone of tactical innovation, the widely used stage-gate New Product Development (NPD) process, Voice-of-the-customer (VoC) and other tools are not the optimal tools to use for strategic innovations. They deal best with what is rather than what can be. They focus primarily on the existing customer and existing markets rather than the future customer and emerging markets. These processes methods and tools are absolutely necessary for a company’s success, but they are not sufficient for a company’s vitality, growth and dominance.

What is needed for strategic innovation is a new innovation process paradigm, one that recognizes the increasing complexity of the demand and design world that exists and the increasing pace of knowledge creation and evolution, both within an organization and without. This new paradigm would specifically address the ‘adjacent possible’ zone of strategic innovation and introduce a new wave of innovative endeavors both in the opportunities that are created and in the way organizations exist and behave.

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