Innovation is the New Strategy

October 5, 2010 by  

In the tangible economy, strategy and strategic planning typically occur within a defined market space. To form their strategy, senior managers study opportunities in the market and align the company to take advantage of the available opportunities. The path laid out for a company is usually clear and concrete. The strategy says, “We know what we need to do and here’s how we will do it.” This is often termed “deliberate” strategy.

But the other face of strategy, emergent strategy and innovation, has been getting a lot of attention lately. So much has been written about innovation, in fact, that it is beginning to feel like a fad. But we don’t see it as a fad. We see innovation as an integral part of the story of management in the knowledge economy. A lot of it has to do with the dynamic that we keep coming back to: the tension between the bottom up and the top down. We have made the case that just about every business today is dependent on knowledge for growth and competitive advantage. And in a knowledge-dependent business, strategy cannot just flow from the top down.

The story of the increased importance of innovation is a continuation of the story about commanders versus conductors described in the last chapter. In fact, a classic image of strategy was the general standing on the top of a hill. He was a seasoned soldier who has many years of experience under his belt. He had studied strategy and experienced how it gets played out on the field of battle. In the conduct of a war, the general possessed the most complete information set of anyone. He had information about the immediate challenges at hand as well as the progress in other fields of action. Using the counsel of his officers, he developed a plan of battle. As it got underway, he could see the entire field of battle. He had the best information and the skills to apply it. The creation of strategy in this case is a top-down affair. And the strategy was implemented through command and control.

The military still uses an extraordinary level of planning. The process of planning is a form of training, thinking through possible future scenarios. This thinking helps prepare everyone involved for the contingencies that will face them on the field of battle. But for all the reasons mentioned in the previous chapter, even the military’s approach to command and control has evolved. This is because the soldier in the field has better communication equipment than ever before. And the type of wars we are fighting are against enemies that are dispersed. It makes sense to find ways to empower soldiers on the ground to improvise within the constraints of the overall mission.

This shift is also happening at big companies with many factories and installations around the world—and for many of the same reasons. Like armies, big companies require coordinated action, uniformity of production and a common purpose. This kind of overall vision and direction will not disappear in the knowledge era. But it can and must be complemented with management approaches that balance the top down with the bottom up. Markets change quickly in today’s world. No one has a full set of information so decision-making needs to be decentralized.

The need is equally strong in smaller companies, although the task is usually made easier because the scale keeps those at the top closer to those at the bottom than they would be in a larger organization. But old habits die hard and there is often a gulf between bosses and employees who work in the same office, no matter what the size of the organization. Successful innovation requires bridging that gulf. And the need to accomplish this has never been more pressing.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

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