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Does Innovation Require Strategy?

Despite Prime Minister Malcolm Turnbull making innovation a hallmark of his time in office, a recent survey reveals that innovation is going ignored by some of the Australia’s largest Chief Financial Officers (CFOs).

The survey, titled the 2016 American Express CFO Future-Proofing Survey, examines the views of 250 CFOs from Australian companies with revenues of between $2 million and $300 million. According to the survey, approximately 40% of CFOs report their company hasn’t bought a new product or service to the market in three years. Furthermore, more than half those who haven’t launched a product for three years, describe that they don’t intend to do so in 2016. Notably, the majority of CFOs surveyed say their company’s approach to innovation is mostly ad hoc, rather than strategically planned.

In specific, the survey notes that about 70% of mid-sized businesses intend to invest less than $100,000 in innovation in the next year. Based on a business with an annual turnover of $50 million, that’s only 0.2%. This figure is emphasised when paralleled against the average 7% spent on research and development by the world’s top ten most innovative companies. Part of the issue, according to the survey, is a large number of mid-sized businesses without a formal business strategy or game plan (23%).

On the other hand, the 40% with a comprehensive, long-term game plan are most likely to predict double-digit growth and are more likely to prioritise innovation. Ultimately, the figures in the survey reveal that those with a long-term strategy are better established to effectively evolve and withstand aggressive competition in cluttered markets.

Thus, as the above shows, successful innovation should be an inbuilt part of your business strategy. Good strategies promote alignment among diverse groups within an organisation, clarify objectives, and help focus efforts around them. Companies regularly define their overall business strategy (their scope and positioning) and specify how various functions—such as marketing, operations, finance, and R&D—will support it. Without an innovation strategy, innovation improvement efforts can easily become a miscellaneous concoction of much-touted best practices: dividing R&D into decentralised autonomous teams, spawning internal entrepreneurial ventures, or setting up corporate venture-capital arms, to name just a few. Overall, innovation calls for a holistic approach that operates on multiple levels –   innovation becomes “strategic” when it is an intentional, repeatable process that creates a significant difference in the value delivered to consumers, customers, partners and the corporation.

What do you think, are strategy and innovation intertwined?