Principled Innovation LLC

Strategy and innovation: Part I

November 12th, 2006

Last Tuesday, I posted an announcement about my three-part series on strategy and innovation, a primer written specifically for association staff and volunteer leaders who are set to begin strategic planning work in the near future. In this first installment of the series, I am offering a few thoughts on the connection between the work of strategy and the work of innovation.

From my perspective, there are three fundamental connections between strategy and innovation that association leaders must carefully consider, each of which I will explore below:

1. Both strategy and innovation are all about creating new value
2. Both strategy and innovation are all about building capabilities
3. Both strategy and innovation are all about taking intelligent risks

Value Creation through Strategy and Innovation

As is the case for every organization seeking to be financially successful and sustainable in its particular marketplace, associations must consistently create new value for their members, customers and other key stakeholders. The central purpose of strategy is value creation, i.e., developing and presenting distinctive products, services, experiences or other offers that somehow address or assist with the current, emerging or unarticulated needs. To put it another way, an association’s strategy should define its member/customer interface by making clear the areas in which the organization creates value and how it does that, as well as the boundaries beyond which it does not.

Let’s consider a non-association example that I like because it is so simple and clear. Southwest Airlines creates value for customers by offering affordable and reliable point-to-point air travel with a friendly touch. But if you’re interested in passenger lounges, first class seating or other amenities (such as they are in airline travel these days), Southwest Airlines is not for you. This brief paragraph summarizes both the core strategic direction Southwest pursues to create value for its customers, as well as what is beyond the boundaries of the strategy. Does your association’s strategy pass this test of clarity and simplicity?

Value creation is also the central purpose of innovation, particularly with respect to the emerging and unarticulated needs of members and customers. Indeed, without a commitment to innovation–both incremental and breakthrough–it is virtually impossible for any organization to sustain the creation of new value over time. Contrary to the popular mythology, the work of innovation is much less about the convergence of serendipitous circumstances than it is about stewarding the careful balance of the freedom to imagine what’s possible with the discipline to implement the ideas that are the fruits of that imagination. This way of thinking about innovation should mirror the way association leaders pursue the work of strategy: creativity in its development, simplicity in the way it is discussed so that it can be widely shared and easily understood and the disciplined execution and orientation to learning that ultimately will determine long-term success.

Building Capabilities through Strategy and Innovation

The balanced approach to strategy and innovation described above demands that associations develop deep capabilities for both. The good news for association leaders is that many of the necessary capabilities for strategy and innovation are shared. The challenge for association leaders is that it takes time, attention and considerable care to build and integrate these capabilities into the organization’s work so they are sustainable through inevitable environmental shifts, economic downturns and staff changes. These shared capabilities of strategy and innovation fall into three broad categories: 1) understanding the present, 2) anticipating the future and 3) creating what’s next.

Understanding the present tests the ability of association leaders to appreciate what is actually happening in the marketplace and the broader strategic environment without myopia or denial. Developing an effective strategy for the future depends in part on whether decision-makers can fully comprehend the real-world consequences of past decisions (and indecisions) and learn from them. It is this kind of strategic insight that often surfaces hidden innovation opportunities from products, programs or projects that might otherwise be missed.

Anticipating the future drives the organization to push beyond what is already understood to explore what can be. Through on-going learning and generative discourse involving a wide variety of internal and external contributors, it is possible for associations to build more robust foresight and unleash greater creativity in both the strategy-making and innovation processes. Association leaders, however, must avoid the trap of trying to “predict” the future, a choice that is tantamount to guessing at which among an infinite number of possible outcomes will occur. Rather, the focus of both strategy and innovation should be on building greater flexibility into the organization’s work so that the association can continuously adapt to evolving conditions going forward.

Creating what’s next is about putting ideas that emerge from insight and foresight into practice through disciplined experimentation. The careful development of prototypes, service tests, proofs of concept and other well-designed experiments makes it possible for associations to safely attempt a wider portfolio of new activities to advance both strategy and innovation efforts. Naturally, association leaders must play close attention to the learning derived from its experimental portfolio and act quickly to integrate that new knowledge into on-going strategic thinking and dialogue.

Risk Taking in Strategy and Innovation

Leaders who believe that the work of strategy is an exercise in risk elimination are in denial; there are no circumstances under which risk can be eliminated altogether. Risk is an inherent element of the operating environment for all organizations, including associations, and it is the presence of risk that provides the incentive to create new value for members and customers. Associations must continuously evaluate their most critical strategic risks and leverage the risk of emerging innovation opportunities to their advantage.

Although staff and volunteer leaders often feel constrained when it comes to investing the association’s financial resources, the size of the investments made in emerging strategic opportunities or new ideas is less important than how those investments are managed. Rather than expensive all-or-nothing gambles undertaken on nothing more than the whims of chief staff executives or chief elected officers (not an uncommon phenomenon in the association community), associations must carefully and intelligently steward their experimental portfolios by making a number of small investments in projects that run across the entire spectrum of risk. This approach makes it possible for associations to maximize the impact of their available dollars while minimizing the uncertainty and financial exposure, i.e., the risk, of any single idea in the overall portfolio.

Coming up in Part II–How does the association approach to strategic planning interfere with the pursuit of innovation?

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