Executives are not investing in innovation simply for the fun of it, but recent trends have uncovered that leaders inside many enterprises are still struggling to find strong parallels between corporate and innovation strategy, and a large portion of these companies are still making “blind bets” with their innovation investments.
So many leaders know “they need to innovate.”
They invest millions into these projects with the hopes of disrupting the norm, transforming their company culture, and catering to the markets of the future, but they have not actually figured out a fool-proof strategy for generating this innovation, let alone how they are going to align these innovation plans with their ultimate business goals.
However, a lack of alignment between corporate strategy and innovation goals can only result in unsatisfactory outcomes.
Based on a study from PwC, 54% of executives say they struggle to align innovation strategy with business strategy, and 72% say they are not out-innovating their competition.
But the scariest statistic from this report is that 65% of companies that invest over 15% of their revenue in innovation believe that aligning business strategy with innovation was their top management challenge.
Fortunately, there are ways for senior executives to recognize their role in identifying areas of concern, communicating strategy, setting expectations and goals for innovation, and ensuring those efforts are headed in the right direction.
What Does Strategic Alignment Look Like?
Having strategic alignment on an innovation project (or an innovation program in general) is essentially the opposite of performing “random acts of innovation.”
It means that your organization has undertaken innovation with specific goals in mind. You have mapped out what you are hoping to discover, how it matches with the company’s vision and overarching objectives, and have at least a vague understanding that there will be various roads to reach an indeterminable set of outcomes, each with unique yet important milestones along the way.
You are innovating with a purpose.
Based on the research, there is clearly a disconnect in between corporate strategy and innovation strategy which is causing large organizations to severely miss the mark when it comes to reaping the benefits of successful innovation projects.
But how and why does this happen?
Why does alignment between business strategy and innovation break down?
There are a number of reasons why misalignment can occur.
Exploring Solutions for the Wrong Reasons
The first reason is based on a flaw with human nature.
Corporate innovators are not immune to “shiny object syndrome” and have been known to be influenced by the lure of new technologies like artificial intelligence, blockchain, 3D printing and so on.
The fact is, exploring these new technologies can be exciting on the individual level, so teams may be drawn in those directions not based on any higher level strategic objectives, but rather, because it might be more fun and interesting for them on a personal level.
While exploring these new concepts is not inherently bad, in fact, quite the opposite if it actually makes sense to do so - just because something is not aligned with strategy today doesn’t mean that it won’t be in ten years time. But teams can become easily distracted by the trends of today and lose sight of the end goals for a project if careful attention is not paid to corporate strategy and vision throughout the process.
Changes in Leadership
Another reason for a breakdown in strategic alignment can be attributed directly to the decisions made at the top. One leader’s personal goals may influence the direction of the entire organization, for better or for worse.
We’ve seen many examples where an executive determined that a certain product or idea should be killed based on their own beliefs about where the organization should be investing, (even in situations when these beliefs were contrary to the actions of employees and customers).
Then, a year or two later, a new leader comes in and sees these discrepancies and decides to reverse the decisions of previous leadership. Now all of a sudden, current innovation projects are misaligned with corporate strategy as the bias of leadership has shifted.
The bigger issue here though is that when changes in leadership disrupt not only the innovation side but also the corporate strategy, you have to wonder whether decisions are being made based on the assumptions of the highest paid person in the room or based on providing value to the individuals the company aims to serve.
Problems of this nature signify deeper issues that are not necessarily related to innovation, but to management, culture and communication.
Instead of killing projects or launching new initiatives based on personal bias, leaders should aim to use the process of Lean Innovation to gain customer empathy in order to make evidence-based decisions. This will also help mitigate the possibility of strategy misalignment every time a new leader enters the picture.
Poor Communication of Corporate Vision and Strategy
This is probably the biggest issue when it comes to alignment, yet you would think this would be less prevalent considering how straightforward the concept is.
When corporate strategy is not clear to the innovation teams, it is almost certain that they will fall off course. According to LSA Global, “Strategic clarity accounts for 31% of the difference between high and low performing organizations in terms of revenue growth, profitability, customer satisfaction, and employee engagement.”
On top of that, 70% of employees don’t even know or understand corporate vision, and feel so disconnected from it that they can’t explain how it relates to their job.
Leadership should have a clear understanding of the corporate strategy and vision, and be able to communicate those values to employees of all levels throughout an organization. Without this clarity coming from the top, teams will move slower, veer off course more easily, get distracted, and ultimately burn resources that your organization probably doesn’t have more quickly.
You’ll wonder why your transformation program is failing, but the reason will be obvious: you can’t align innovation strategy with business strategy if no one knows what the business strategy or vision for the future is.
Poor Communication of Innovation Strategy
Business strategy is not the only piece of the puzzle. On the flip side, poor communication of innovation strategy can hold teams back from generating results that are in line with corporate goals.
In this situation, corporate strategy is clear, but the goals, outcomes, and expectations with regard to innovation are not. All companies know they need to innovate - but what does that even mean? The problem here arises when companies don’t make strategic decisions about how they want innovation to live within the organization.
If leadership does not clearly paint the picture of how innovation fits within the wider context of the company, teams will essentially be flying blind and creating the random acts of innovation we discussed before. Ultimately, innovation initiatives without clear strategic goals are unlikely to align with overarching business objectives and are a waste of resources.
The last reason that misalignment might occur is simply based on context.
We like to use the Three Horizons model from The Alchemy of Growth to categorize innovation projects.
Some background: Typically, H1 initiatives take place in a state where we have already proven that we can operate at scale. These projects are focused on improving efficiency and strength of the core business, innovating in shorter time frames and mostly within the known. For H1 projects, direct strategic alignment is a must.
H2 projects are business models proven to work on a smaller level. The next steps are to scale them out to see if they can sustain at a large level. This is the stage where strategic alignment really comes into play because the organization is ready to dedicate real resources at this point.
And, an H3 project is one that has a longer (typically 5+ year) time frame. These are your initiatives that are exploring brand new business ideas and are several years away from maturing into a real business. Because humans cannot predict the future, measuring strategic alignment in this Horizon is infinitely more difficult (and less important) than in projects where there is less uncertainty.
It is highly probable that many H3 initiatives will appear misaligned because they are in the early stages of development. Careful consideration must be taken when deciding whether or not to kill projects in this stage solely based on misalignment with corporate strategy.
A propensity for killing projects prematurely can effectively destroy your organization’s chance to deliver high impact results, and leave you with a graveyard filled with the ashes of burned dollars and the tombstones of potentially great opportunities.
How can companies avoid this breakdown?
In order to ensure that strategic alignment is occurring across all innovation projects, organizations must constantly work to:
Understand Customer Pains - pursuing solutions based on new technologies or deciding to pull a product are decisions that need to be made based on customer evidence. Relentlessly seeking to understand the customer will help leadership and innovation teams with corporate and innovation strategy alignment in the long-run.
Create a Feedback Loop - Business strategy should inform innovation strategy and vice versa. Keeping these two engines running simultaneously and continuously feeding both sides with key learnings from Lean Innovation work will ensure that they are working in harmony.
Communicate Vision and Strategy Clearly - Make sure everyone is on the same page with regard to company vision and strategy by taking as much time as needed to explain these concepts. Check in regularly with team members to make sure everyone is still aligned, and focus employees around big picture goals.
Consider the Context - Not all H3 projects that are misaligned today will be misaligned in the future. There is a time and a place to leave things alone to develop. Killing projects too early can lead your organization away from true innovation and keep you from producing high impact projects that help you reach your goals.