Strategy and Innovation go together. The former sets the vision and goals to aspire, while the later provides the execution power needed to meet the goals.
Strategy also helps define innovation as it helps in answering the following questions:
- Does the company need to grow organically or is inorganic growth a better option?
- Does the company need to build, buy or partner?
- Is this the right time to innovate?
- What kind of financials should the company expect?
- What is the right time frame for profitable innovation?
Leaders need to answer such strategic questions and they need strategy frameworks to help them in the process. When it comes to strategy frameworks there is no one size that fits all, and hence I would like to share my opinions on few of the strategy frameworks that I have used in the past, the pros and cons of using the framework and my recommendation.
BCG Growth-Share Matrix: (Read about this framework here)
Many companies have used this framework for years to figure out the best places to invest their limited resources. It is a powerful framework as it helps in prioritizing the investments by short and long-term potential of the business.It tells us to milk our cash cows, kill the dogs, improve question marks and invest in the stars.
But the recommendations from this framework are not easy to execute. For example, it is not always easy to kill the dog or milk the cash cow without investing (because competition will catch up and the cash cow will turn into a dog within two years). Also, this framework does not really help in figuring out the future growth opportunities, i.e. the adjacent markets where the company has no current offerings.In today’s business environment no business leader can solely rely on current product offerings and expect to stay competitive in couple of years.
Hence I do feel that this is not the right strategy framework for innovating in today’s business environment.
McKinsey’s Three Horizons of Growth: (Read about this framework here)
This framework suggests that every leader should look at their business over three horizons (short, medium and long) and set their investment priorities based on their expectations across the three horizons. For example, Horizon 1 is all about superior execution so the investment should focus on scale and efficiency of the business. Horizon 2 is about Positional Advantage, so the investment focuses on becoming the market leader and setting the standards. Horizon 3 is about innovation, where company try a few things which could be a hit or miss. But the investment in Horizon 3 sets the tone for future value contribution by the company. This framework suggests that equal attention is paid to all horizons with right investment corresponding to each opportunity. It also suggests a set of metrics, talent and capabilities required for each horizon.
Though this is a good framework it really does not address the core capability question for the company. It does not force the business leaders to think outside the box in terms of potential future opportunities which are not on companies radar.
Though this framework is not as simple as the other two frameworks, it does a good job of laying down the business opportunities as core, adjacent and new. It also helps business leaders understand the risk/uncertainty involved in each opportunity (such as, new opportunities are much more riskier with uncertain outcomes than the core opportunities).
Business leaders can plot their current and future business opportunities on this framework as a bubble chart (size of bubble corresponds to revenue potential of the opportunity), and clearly see where to invest their time, effort and capital. Also, it helps them think out of the box and really explore other areas which are beyond the core, which helps the business leaders in focusing and creating long-term value for their shareholders.
Though this helps in framing the strategic opportunities well, it does lack the time aspect. And I have solved that issue in the past by portraying a product /services road-map. This allows me to have a healthy discussion about investment opportunities followed by an investment timeline.
Based on my experience, I would recommend Deloitte Growth Framework for figuring our investment priorities with some aspects of McKinsey’s Horizon framework to figure out metrics/talent/capabilities across the time horizons.
In my book “Shift: Innovation That Disrupts Markets, Topples Giants and Makes You #1”, I have introduced customer experience focused strategy framework, that would help companies innovate to deliver best-in-class customer experience.