Strategy and innovation: Making the right strategic decision and developing the right innovative capabilities

All organizations must be innovative. Is this statement true or is innovation only another management practice that a company can employ in a search for superior performance? This paper suggests that innovation is a management practice and it is critical for an organization to decide if it is going to pursue innovation as a management practice. Despite the call for companies to be innovative, research indicates that it is not necessary for an organization to be innovative to be highly successful. Worse, it is problematic that few companies are capable of excelling at innovation. This is because it is a very difficult management practice and few senior leaders have a clear, well-developed model of what innovation looks like as an organizational capability within a company's specific context. To examine the need for innovation and a company's capability to excel at innovation perhaps one starting point is to define innovation differently. There are two types of innovation: upstream and downstream innovation. Upstream innovation is development of new inventions and technologies. Downstream innovation is the process of turning the inventions and processes into economic value. A company's vision drives the process of deciding to pursue innovation. Company leaders should be aware innovation exists in a context approaching chaos. It exists in a context where complexity is high and the unpredictable occurs far more frequently than predictable results. Determining what management practices will lead a company to superior performance is the first step to becoming a leader in an industry. Companies that out-perform their industry peers excel at what are called primary management practices-strategy, execution, culture, and structure. Companies that out-perform their industry peers supplement their skill in primary areas with a mastery of any two out of four secondary management practices-talent, innovation, leadership, and mergers and partnerships. A company that chooses to pursue innovation, as a management practice, must first recognize that being innovative is not a strategy. Strategy is also a management practice. Being innovative is a capability that is the result of a successful strategy. A company must choose to be very good at strategy and other management practices and the practices must be aligned and performed at the same time.