An innovation strategy is a subcomponent of business strategy.
A good innovation strategy, either as a key ingredient of corporate strategy, or a separate subcomponent of strategy, is an inspiring mental model shared by the key stakeholders of a firm. It sets the direction and defines the broad boundaries of the creative space, within which these stakeholders can be inspired to generate new ideas and implement them to create new products, processes, and business models. What are the characteristics of a good innovation strategy?
Innovation strategy as a subcomponent of business strategy: Before you can have an effective innovation strategy, you require a clearly communicated and understood the overall business vision and strategy. A good innovation strategy supports a clear (and ideally an aggressive) vision within the business. A vision is a mixture of the understanding of who you are as a company. What is your value, what is your external image, how others perceive you? Innovation strategy should then follow broader business objectives. Understand where your business wants to get its growth from and focus innovation strategy around it. Too often companies want hard and fast innovation that leaves them with new ideas that don’t necessarily translate in business success because the objective of the project wasn’t thought through.
Making direction and setting boundaries: The key of innovation strategy is to give direction and set boundaries but not at the cost of restricting creativity and inspiration. There must be different approaches, flexibility, and the possibility for Plan A to D (at least). Is it a strategy that is focused at innovation sensitive opportunities...or...is it an innovative way to weave together defined strategic initiatives....or...all of the above. You have to find out what to start with that makes sense. But you don't have to absolutely stick to one line. You can think of it in term of the type of people you would like to see involved in innovation. It's a delicate balance - too loose and there can be much-wasted activity; too tight and you can prematurely squash ideas. There are several important factors of a successful innovation strategy that should be pervasive in a company. The first is that every employee working on innovation efforts should understand how their assignment, the work they do each day, is essential to the success of the strategy. The strategy should be so compelling to them that they are fully committed to achieving their assigned objectives.
In-depth understanding business ecosystem: The ability to learn about the business environment & ecosystem is a more important characteristic of innovation management. As operating boundaries have become less clear attempts to 'protect' organizations from the uncertainties of their operating environments, the sustainability of an organization is dependent upon its ability to respond to the environment within which it operates. Mechanistic models and closed systems, approaches that attempt to 'protect' an organization from the uncertainties of its environment may have short-term benefits (e.g. meeting targets, profitability), but in the long term, they are likely to fail due to the lack of insight that underpins adaptive capability. A key feature of creating this insight is the need to learn from the environment and to embed that learning into the knowledge stock of an organization.
Three core elements in an innovation strategy are: (1) Source: where do ideas come from? (2) Scope: what type of ideas would be considered relevant? (3) Sponsorship: How will you fund the selected ideas? Strategy, in general, is how a specific company will occupy a specific market space to differentiate from the competition. Building from this, the Innovation strategy is 1) what the innovation effort is focused on - defending the core, penetrating the adjacencies, or entering the white space and how the resources will be balanced across these domains; and 2) how the company will do it - through internal development and organic growth.
In summary, an innovation strategy should directly support the overall business strategy by creating a focused but balanced portfolio of projects that maximize the output from the innovation team, in terms of adding value to the organization by delivering solutions to the aforementioned attribute. So an innovation strategy should be all about focusing the creativity of the team on delivering the maximum positive impact for the overall business strategy.