Targeted development of innovation

Four dimensions for an effective innovation strategy.

Often, companies lack a clear strategy to fully exploit their innovation potential - even though it is actually not that difficult to develop an innovation strategy. At the same time, there are several things that must be taken into account. Open Innovation can help companies increase their innovation performance, as long as they are mindful of several criteria in this context.

Innovations are the driving force behind business success. But innovation development in companies is often a cumbersome process. Companies need a defined innovation strategy to master current and future challenges. An innovation strategy describes the company's long-term innovation goals and provides employees with a guide for innovation-related decision-making. Managers must be mindful of the fact that the innovation strategy must be coordinated with the business strategy. The more it is embedded in the latter, the easier it is to implement.

In addition, the innovation strategy should be adapted to the company environment and regularly scrutinized. This is particularly true in dynamic markets. If that does not happen, a company may find that its products, ideas and philosophy are no longer of interest to the relevant market.


Four dimensions

Anyone wishing to establish an innovation strategy or quickly review an existing one should consider the following four dimensions:

  1. Formalization ensures that the strategy is integrated into the organization. It describes whether a written innovation strategy was prepared, how precise its contents are, and to what extent it is available to the employees.
  2. The ambition level demonstrates the degree of differentiation with regard to the contents and the time frame of the innovation strategy. Challenging innovation strategies aim for a higher innovation level and rapid market.
  3. Implementation represents the compatibility with the business strategy. The long-term advantage of an innovation will greatly depend on this conformity. For example, a high degree of implementation may be reflected through an innovation-based distribution of resources and incentive systems.
  4. Strategic innovation controlling defines how systematically and regularly the innovation strategy is validated and adjusted. In the ideal case, the company continuously and flexibly adjusts its strategies to external influences.


Important factors for the strategy

The contents of the innovation strategy represent a key criterion for its success. A strategy, with its company-specific focus areas, should cover at minimum the following items:

  1. Timing: Is a pioneer strategy useful, or is a (fast/slow) follower strategy more promising?
  2. Performance: Does the company strive to become a performance leader, or does it only aim for an average level of performance? Which future expertise and skills are the most important?
  3. Innovation types and technological focus: Does the company focus on product innovations, on process innovations or on different types of innovation? What technology(ies) does the company focus on?
  4. Source of added value: Does the company focus on internal or external research and development? Does the company target special cooperations or acquisitions to access external knowledge?
  5. Use: Are the ideas and inventions used mainly within the company, or are they also conveyed to external market participants? Do they perhaps leave the company through licensing?


Open approach for innovation

The last two aspects - source of added value and use - play a particularly important role with regard to Open Innovation. The basic idea behind the Open Innovation approach is that a closed innovation approach is no longer a sustainable option in view of the rapid development and distribution of valuable knowledge. Therefore companies wishing to maintain their innovation capacities must open their innovation process to external market participants.

Since the beginning of the Open Innovation concept, there has been a division between open and closed strategies. But in fact, more attention should be paid to the gradual character of openness: Companies decide on the degree of openness that works best for them. It is a highly relevant factor for decision-makers. Because they must recognize when their company is pushed towards openness from the outside - e.g. through their customers - and is therefore driven beyond the optimal degree of openness.


Be careful about too much openness

Even proponents of Open Innovation warn companies of becoming too open. There is a risk that other market participants profit from the possibilities provided by the innovation, while the “inventor” can only derive limited benefits. For this reason, companies should determine their optimum degree of openness and take it into account as part of the innovation strategy. In that way, they can differentiate themselves from the competition, which only follows a continuous Open Innovation trend.

In light of the complex environment faced by many companies today, they should define different degrees of openness for different cooperation partners and divisions. In addition, the optimum degree of openness may change over time, e.g. depending on the product life cycle. Companies should not formulate their strategy in too much detail, however. This creates a lot of unreasonable work and makes the important task of regularly reviewing and updating the strategy more difficult.