How to create an innovation strategy from scratch

Being an innovative company is about more than the ability to come up with good ideas. To be good at it, businesses have to overhaul their resource allocation, values and culture. So how does a business get started and what challenges do they need to be ready for?
illustration of innovation strategy

Making the decision to innovate is not a simple one. If a business is flourishing, diverting money and resources away from an approach that is working can feel like madness. Similarly, if a business is struggling, focusing on anything beyond the turnaround can feel like a luxury. However, with businesses and the economy still reeling from the dual impacts of Brexit and the pandemic, innovation is becoming ever more necessary.

“Every business needs an innovation strategy, not just to be successful but to survive because the world around us is constantly changing,” says Dr Jo North, founder of innovation consultancy The Big Bang Partnership, which has worked with organisations such as Transport for London, Aviva and the University of York.

“What I mean by an ‘innovation strategy’ is having a plan to grow your business through doing things differently.” 

This might sound straightforward, but for companies where innovation is not part of business as usual, it can require an overhaul of mindset, company values and culture. So, how do you know if an innovation strategy will help?

Does your company really need an innovation strategy?

The short answer is yes. David Newns is one of the youngest executives listed on the FTSE and has more than 800 patents to his name. Given his experience, he knows all too well the difficulty businesses face in balancing what needs to be done immediately with the desire to innovate

“Innovation isn’t something you can simply put on your list of priorities, because it isn’t tangible - you don’t know when it’s going to be done,” he says. “Unless you’ve got a really clear strategy and a group of people that are dedicated to thinking about innovation, it will stay at the bottom of the list. If you don’t purposefully commit to creating a framework and a strategy to do it properly, then you may as well not do it at all.”

Jessica Nordlander, an ex-Googler and now COO of software company ThoughtExchange, agrees. Voted Sweden’s most innovative leader in 2019 by Ledarna, a trade union for leaders and managers, Nordlander’s approach to leading a business relies “heavily on a framework that is based on exploitation and exploration”. This means business activities are split between exploiting an organisation’s existing capabilities, knowledge and resources, and exploring new and different ways of working. 

“It’s always helpful to have that framework in mind,” she says, “because this efficiency bias exists in most companies - they are constantly drawn to the activities that improve their growth or bottom line right now”.

Of course this is important, she says. But she argues that every company needs to invest in their future viability or they will struggle longer term, and that the old adage ‘if you fail to plan, you plan to fail, holds true.

“People ask, ‘Why should I create a plan?” says North. “What’s the point of planning when everything’s changing?’ Well, you need to know your end destination and then, like a satellite, you can always change your route, but having a plan to begin with is absolutely key.”

How do you create an innovation strategy? 

Be consumer-centric 

The hardest part of becoming more innovative is getting started. As North suggests, working out the end destination can be a helpful first step. All innovations should begin with the people who will use them: the customers. 

“Consumer-centricity needs to be the first point,” says Newns. “Lots of companies are trying to get to that place but don’t know how to start. If you put the customer at the heart of what you’re trying to do and think about how to serve them better, you really start opening up opportunities.” 

North agrees. “We’re all in business to solve a customer’s problem somewhere. If the world changes, our customers’ problems change and we need to make sure our businesses evolve and adapt to that.”

Start ‘horizon scanning’

To keep up with this ever-shifting business landscape, North recommends ‘horizon scanning’ as the second step in crafting an innovation strategy. This involves, in essence, undertaking comprehensive market research and talking to customers.

“It’s about seeing what’s going on in the world - the shifts in how people are behaving and what they are consuming,” she says. “Look for things that aren’t just ‘in-the-moment’ trends but are real, directional changes you need to be aware of, such as new technologies or climate change.” 

Some of this information can be gathered by having real conversations with customers about issues beyond their next order. It requires companies to ask what else consumers need from them and, more importantly, what they go to competitors for.

“Look for those signals of an industry, a sector or a space that is complacent or where customers are dissatisfied. Then look at what you can do to make it better,” she adds.

These trends may feel difficult to find, but the signals can come from anywhere and hitting on them could be as simple as reading the news or speaking to people more regularly. The important thing is to be on the lookout for the global trends shaping the way we live, advises North.

Other resources she recommends include Mintel for consumer research, Gartner’s technology Hype Cycles, Statista and even free tools such as Google Trends, which can help businesses understand what people are actually searching for online. 

Talk to people outside the business 

For Newns, who has not only headed up his own company but has also sat on the executive boards of different firms, the strategy should include collaborating with - and learning from - other businesses. 

“I’m a massive supporter of the idea that if you are the CEO of a company you should spend at least 25% of your time not in the company. You need to leave your bubble and spend time outside your organisation,” he says.

He believes that larger companies often struggle to innovate because they are entrenched in their own ways of operating. Collaborating with more innovative business people - such as entrepreneurs - can create opportunities for both sides. 

“Why shouldn’t CEOs be mentoring entrepreneurs?” asks Newns. “Big companies are fascinated by entrepreneurs, who sometimes earn more money than their executives do. And entrepreneurs also think ‘gosh, imagine what you could do with the resources that big companies have!’ 

“There’s currently no place for these two creatures to have that conversation. If they did, I think they’d be inspired by each other to do really interesting, disruptive things.”

Create slack 

Having been inspired by research and external collaboration, thought must be turned to how the innovation strategy will operate internally. The first thing to do, says Nordlander, is create slack in the business. 

“Make sure you have a little bit too much, in terms of the resources you need, and you will be able to use those excess resources to produce something above and beyond the minimum requirement for a role,” she says.

She uses the example of a front-end developer who is given access to back-end tools, in spite of the fact they do not need them for their day job. “All of a sudden, having access to more than someone needs will increase the chances of being creative and making progress on more explorative projects that aren’t really a part of their day-to-day life.”

But more than just freeing up resources, creating slack means truly embracing the mindset necessary for an innovation strategy to work. For many companies, giving everyone more computer power than they need might seem wasteful and inefficient. Again, however, Nordlander’s ‘exploitation versus exploration’ framework helps to shift the focus from short-term to long-term gains. 

“Exploration is built on giving people a little bit more of everything to unleash their creativity,” she says. For, without creativity, there can be no real innovation.

Make better use of your IT team

It’s not just physical resources a business needs to think differently about when crafting an innovation strategy, but human resources too. 

Nordlander received her most innovative leader accolade while working at education company STS. A large part of her success was down to an overhaul of both how employees saw their in-house tech team and how they collaborated with each other.

“When I joined, IT was seen as a cost centre, not as a group of people that could help the company develop or innovate,” she recalls. The department was simply where employees went to check hardware in and out, rather than a source of technical expertise and support. What Nordlander decided to do was identify every role in the business that had anything to do with technology and start to encourage cross-collaboration.

“What we were able to do was connect these entities in a different way to start creating synergies between people’s skills and knowledge bases. It completely changed how people with a lot of technical competence contributed to the business and allowed them to use skills they had in ways that had never been done before.” 

This is particularly important for companies looking to innovate digitally, says Nordlander. Her advice: stop seeing IT as a low-level support function and start empowering tech-savvy employees to work together and get creative. That way a business might be able to unlock ideas it never thought possible.

Consider an incubator

When it comes to overhauling the way a business operates, sometimes it makes sense to have a smaller, trial run first. This is where an incubator comes in. 

The incubator method of innovation means having a select group of people within an organisation whose entire purpose is to devise innovative products, services or ways of working and to test them before they are rolled out more widely. 

The pros of an incubator are clear. It’s a safe space to innovate, test and fail without the fear of disrupting wider business operations. But there are cons too. Keeping innovation separate from the main business runs the risk that it won’t be fully embraced by the rest of the company.

The best way to address this, says Newns, is to ensure the right mix of existing and new employees. “If your incubator is made up of a wholly new team, the main business tends to reject them. If you go for a 50/50 split, it’s like The Hunger Games, with everyone arguing. I find the best balance is when the team is a third new people. It brings enough of a new view to change the conversation, without people feeling vulnerable or defensive.” 

What challenges can you expect to face when innovating?

As with any project, from home renovation to software development, when developing an innovation strategy it is crucial to factor in the potential challenges and account for them.

Getting comfortable with risk 

“Risk is inherent in innovation,” says North. “But not innovating is also risky.” This can seem paralysing for businesses. To be the first in an industry to do something or to be the creator of something new requires a company to stick its head above the parapet, but it is possible to mitigate that risk. 

North’s advice? “You can offset that risk by testing and being really customer-focused.” 

As mentioned above, by understanding customers, organisations can create something that holds real value. Ensuring each innovation is related to a clear customer need or pain point mitigates the risk of no one really wanting the final product.

It also helps to keep goals bite-sized and achievable - to begin with. North recommends adopting a fail-fast, test-often approach. “It’s about having an idea, testing it as quickly and effectively as you can without spending too much time or money, getting some feedback and going again.”

Managing cash flow and finding funding

Another ever-present challenge is money. “Assume innovation is going to take longer and you’re going to spend more than you originally thought on it,” advises North. This is exactly why an innovation strategy is so crucial, she says. Mapping out costs and cash flow issues from the start will help give a clearer picture of what is possible within a given time frame.

But this should not be an excuse to avoid innovating altogether. Companies need to start spending money to ensure future viability. Managing current cash flow well but investing nothing in innovation is a common mistake. Nordlander compares it with setting money aside for a pension. 

“Retirement savings are a similar trade-off,” she says. “Do I want to have some resources in the future or do I want to compromise the quality of my current life by putting away some of the very little I have?” 

But companies that are serious about their future viability need to make this a priority and commit to setting money aside for innovation. 

External funding, too, can be a valuable path to innovation. “Venture capital is really what has made it possible for companies - such as the big tech firms - to be incredibly unprofitable in the short term,” says Nordlander. Funding allows organisations to focus on the explorative activities required for innovation, rather than simply the exploitative ones. 

Having a fully developed innovation strategy is also helpful when it comes to securing funding, says North. “There is always funding for a great idea, as long as you can show it delivers value to customers.” 

The final thing to understand about funding is that the sooner it is pursued, the better. As the world changes and new technologies and trends impact the pot of money available, organisations may find that the help available to them starts to dwindle. 

Newns uses the example of oil and gas companies and the emergence of environmental, social and corporate governance (ESG) funds. He explains how ‘bad’ industries that might look to pursue green innovations now find themselves with less capital to invest in these projects as their stocks are sold down and diverted into cleaner, greener funds. 

By failing to innovate, such businesses have found their share price plummeting with less money to invest in the very innovations that could get them back on track. “So, the message is: do it early, don’t wait,” he summarises. 

Culture and communication are crucial

As with any major organisational undertaking: people are key. Fundamentally changing the way an organisation operates can create uncertainty among a workforce and any movement towards a new way of doing things is bound to make those who excelled in the old way uncomfortable. 

The way to get them on board is to get them excited about innovation, says North. “It comes down to the concept of value,” she says. That value can be the inherent usefulness of the innovation, how well it chimes with staff’s personal values and ethics or its financial value - is this innovation worth the time, money and effort being put into it? “It’s about making an emotional connection with your innovation so that people care enough to want to get behind it.”

If that concept of value is still too intangible, Nordlander believes there is one surefire way to get people on board: give them a stake in the organisation. “If you’re not willing to have people share in the long-term success of the company through, for example, ownership, you need to accept that some people are going to have a hard time feeling it’s worth it if you don’t incentivise them.” 

To ensure that engagement remains high as a business implements its innovation strategy, keep employees in the loop. “The key thing,” says Newns, “is to create that communication cycle in the organisation early.” If using the incubator model of innovation, be sure to showcase what it is doing regularly so workers feel like they know what’s going on and can get excited about progress.

“A very practical thing we can do is…actually do stuff,” says North. “Not just talk innovation all the time and not be planning innovation all the time, but look for those quick wins. Look at where you can put something - preferably something tangible - out there and say ‘Look, here is something we are doing to move towards innovation’.”

Ultimately, the success of any innovation strategy lies in developing the right company culture and encouraging employees to think and work in new ways. It may be wrought with challenges, but having the right plan in place can help an organisation navigate many of the common pitfalls and set itself up for long-term growth.