Developing Strategy as an Innovation Process

by Thomas Fundneider

How to develop a strategy?

Come on, I know how to develop strategies, you might say. There are related questions which are not trivial, such as how to put strategy into action or how to design the process both bottom-up and top-down, nevertheless strategy development is an established process. So, why to deal with strategy formation again? Because, most of us have been educated in strategy development during a more stable and predictable environment. As this context has changed quite dramatically, I want to propose to understand strategy development as an innovation process. Not for the sake of proposing yet-another-strategy-development-process, but because I am convinced that this approach is more apt to our current (and future) times and needs.

Why does strategy mean different things to people?

As Mintzberg et al. pointed out in their seminal book Strategy Safari, strategy can mean different things to people. More specificly, the authors identified different perspectives / definitions of strategy, which are rather useful in understanding the nature of a strategy: first, one has to distinguish between a strategic plan and strategic behavior. The first one is the (intellectual) definition of a course of action into the future, planning to get from here to there. The second one looks at past behavior. What did the organization actually really do – invest in new technologies, occupy the premium market, etc.? In hindsight, a realized strategy will never be the same as the intended strategy, but will include parts of the latter (which then is coined deliberate strategy) as well as new aspects in form of an emergent strategy.

Furthermore, to some people strategy is a position, to others strategy is a perspective. What is the difference? The positioning school understands strategy as locating specific products or services in particular markets. The latter regards strategy as an organization´s fundamental way of doing things. Think about McDonald´s offering breakfast (called Egg McMuffin) – this is consistent with the organization´s perspective (they still offer the product in McDonald style), but position McDonald´s in the breakfast market. In contrast, serving all meals at the table would significantly change the organization´s perspective (although the positioning might stay the same).

Should we develop strategies at all?

As everyone who has been involved in strategy creation knows, this is not at all an easy and straight-forward task. Although the future is largely unknown, the goal is to define a pathway toward the future. It is the purpose of a strategy to set the direction and focus activities. This has advantages but also drawbacks. Especially in our current turbulent and exponentially changing environment, orientation is something, we need most both as individuals and organizations. Thus, a strategy should be seen as a guiding tool that is used flexibly without ignoring the opportunities that lie off the defined strategic path.

This leads to the question of whether a strategy is necessary at all, or more pointedly, whether a strategy does more harm than good. It depends on how the strategy is seen and implemented: as a fixed and rigid path that must be followed without fail, or as a signpost that provides direction while being open to alternative routes that may prove to be better options.

Our understanding of strategy

Our understanding of strategy is based on enablement and cooperation, and is associated with the biological perspective of “niches” and “niche creation”. Kauffman (in his book “A World beyond Physics”) describes the process of niche creation beautifully:

“Each species affords one or more adjacent possible new niches for yet new species, which so expands what now becomes possible… each species also affords adjacent possible… new niches that invite the next new species… new niches expand faster than the species that create them.”

Putting this into the context of organizations (and strategy), organizations are not primarily creating niches (positioning) for themselves and compete with other organizations (and their niches and positioning), but rather create niches through their products, services and business models which in turn enable other ecosystem players (contributors, service providers, but also apparent competitors) to emerge or grow. This is a radically ecosystems- and cooperative perspective: organizations are (co-)operating in mutual (synergistic) relationships and—instead of competing—enable emerging ecosystems. Kauffman applies this idea to the way in which mainframe computers enabled personal computers, and, in turn, made possible word processing, then the modem, the Internet, the Web, and as an example Amazon.

Developing strategy as an innovation process

Let’s come back to the notion that predominant approaches towards strategy formation seem to be outdated. Strategy creation, implementation and controlling in a cascading process may have worked in stable environments, but is no longer appropriate for our current situation. So, the question is, how to develop strategies then?

So far, theLivingCore has found one answer to this question. Namely, that of developing corporate strategies together with organizations in an intensive deep-dive and radically open innovation process. For that, we employ the generic innovation technology leap having been developed and used since 15 years; it aims at bringing-forth profound radical innovations. Keep in mind, this innovation approach is not a creative sprint or Design Thinking exercise, but a process that is based on profoundly understanding an organization´s core and its potentials by “thinking and learning from the future as it emerges”. Let’s have a closer look what it means, when strategies are developed by such an approach:

1. Making use of future potentials

If strategy making is a process of leaping from a current rather stable state to a different future state, then strategy development has to be considered a process of transformation. Consequently, it requires organizations to look into the future and identify potentials which are not yet leveraged. Such an approach is exactly what (good) innovation processes are about, namely being oriented at and driven by future potentials. Developing strategies in this manner helps organizations focusing on potentials in a highly structed way and provides the foundation for build sustaining strategies on these potentials (as they are future-oriented).

2. Valuing the existing (old) and transforming it into the future

One of the premises of the leap innovation approach is its inside-out strategy. I.e., the point of departure is not to start scanning the (outside) business environment, elaborating on SWOT-analyses, or drawing competitive landscapes, but to look inside the organization: What is the organization´s legacy? What is our core/essence and purpose? What is worth being transformed and brought into the future? Etc. These questions will help the participants of the strategy innovation process to deeply understand the company´s history and its core assets. Ignoring the organization´s legacy and deeper purpose will undermine the development of strategies for the future. Thus, any strategy that will be developed later in the process, builds on the valuable existing elements and integrates the new (strategy) with the old (positioning).

3. The power of social coherence for long-term engagement and commitment

Obviously, senior management must be part of any strategy-building process. Strategic planning, as we all know it, cannot be delegated. Understanding strategy-making both as an innovation and as a social and team process implies that it is possible to not only discuss controversial and demanding topics in a radically open manner, but also, by that, to create strong social ties and coherence between the team members (typically 10 persons comprising senior management and high strategic talents) lasting beyond the particular strategy development process. Topics, issues as well as ideas will be “negotiated” in an appreciative, but brutally honest way aiming for deeply understanding underlying assumptions and premises. Such a framework builds trust, enables deep learning and creates long-term engagement.

4. Emergence of the future direction

Following this proposed innovation-based strategy-building process eliminates the need to develop options. In our leap projects, the future direction an organization should pursue “becomes obvious”; it emerges in the course of identifying and cultivating future potentials so, that there is no longer the need for voting for or selecting between different strategic options. More importantly, the resulting strategic direction is not a compromise. Experience shows that a very intense dialogue takes place until the team reaches a break-through in defining the core pillars of the new strategy. Yet, because this decision is based on asking profound questions and being driven by future potentials, it won´t be questioned a few weeks later.  

5. Prototyping and fast-cycle learning

Proven innovation processes incorporate prototyping and testing of the outcomes as core elements. In the context of strategy formation, this is highly relevant, since many executives report that they have hard times when it comes to implementing the developed strategy. Therefore, the leap process integrates feedback from key stakeholders, prototypes in a fast-cycle learning environment, and deals with resistance in order to counteract a de-coupling of strategy from operations. At the end of the leap process, the team tests, learns and prototypes aspects of the draft strategy, aiming to start integrating strategy with the operations´ systems of the organization. The result is not just-another-strategy which waits to be implemented (or not), but already tested elements of the new strategy creating new realities and driving actions.

By labelling “strategy development as an innovation process” we do not aim at creating another (consultancy) buzz word for re-labelling already known approaches. In a VUCA (volatile, uncertain, complex, ambiguous) environment, it is not only necessary to leave behind strategies that are driven by past experiences and crave control almost exclusively. Rather, we need to dig deep into future potentials that provide orientation for a future-proof strategy that can deal with the uncertainty, complexity, and unpredictability of our world by giving answers to these generic questions:

• Where are we now?
• Where do we want to go?
• How will we get there?

We are convinced that developing strategies in this way is a truly impactful option. If we made you curious, we are happy to talk with you!

Image: Ivan Bandura at Unsplash