Look across the Fortune 500. You’d be hard-pressed to find a scaled enterprise without an innovation strategy.
Whether it’s executed solely with research and development resources, an innovation team with a dedicated Chief Innovation Officer, or outside help (consultants, partners, research labs, etc.), a well-crafted innovation strategy can strengthen the core business and help identify new business opportunities.
Corporations clearly see the value of creating an innovation strategy tied to their overall business strategy.
But with the business environment constantly and rapidly changing, the types of innovation strategies that lead to long-term success for enterprises continue to change, requiring these companies to adapt.
That begs the question, though:
How can large companies continually modify their innovation initiatives to align those innovation efforts with the needs of existing business models and goals and future business opportunities?
Let's explore what the modern innovation strategy entails for today's corporations and zero in on what specific kinds of innovation programs can move the needle for their company today and prepare them to thrive tomorrow.
What is an innovation strategy?
An innovation strategy involves ongoing experimentation, either solely within a business or with the aid of an external partner, to find ways to improve, expand, or augment existing products and services or to create entirely new business models or offerings.
No two innovation strategies look exactly alike. But the goals are the same:
- Drive growth and efficiencies near term
- Future-proof the organization long term
A corporate innovation strategy is important because it helps large enterprises:
- Stay one step ahead of others in their industry/vertical and gain a competitive advantage
- Conduct quick, cheap tests tied to and away from the core business at scale, based on hypotheses, internal and external research, and perceived market opportunities
- Deliver greater value to high-value customers and partners to maintain trust and loyalty
By constantly experimenting with new business ideas and concepts and embracing ongoing process and technological innovation, corporations can maintain their market share, better empower company-wide (e.g., execute smarter sales and marketing strategies, streamline customer success workflows)
"The innovator's dilemma says that executives can do everything right, serving their best customers and doing it ever-more profitably, but their businesses will ultimately fail," High Alpha Innovation CEO Elliott Parker recently explained on Powderkeg's Get IN podcast.
Elliott said that's because, as these corporations move upmarket to serve existing customers, they "leave themselves exposed at the lower end to new entrants who come in with good enough products, grab a foothold, and then move upmarket themselves and displace those incumbents. It's a really hard problem to solve."
Benefits of an innovation strategy
At a deeper level, a well-designed innovation strategy enables corporations to:
Tackle problems and risks outside of the core
Roughly one-quarter (23%) of corporate executives told Fast Company their companies' R&D budgets and programs accounted for 15% or more of their organizations' revenue in 2023. Not surprisingly, more than half (54%) of these leaders planned to increase R&D budgets as a result.
Core business innovation is always vital. But more enterprises are realizing the pros of innovating beyond the core.
Consider corporations launching startups.
Venture building (and, more specifically, the venture studio model) enables them to explore new business models and build their own companies that solve big problems of interest to them.
Become more adaptable and resilient as a business
In 2025 and the years ahead, there is likely to be "continued geopolitical upheavals," MIT School of Management Associate Dean of Innovation Fiona Murray recently noted. "For leaders focused on innovation, this means shifting priorities to build more resilient supply chains and production systems," she stated.
In other words? A future-focused innovation strategy can enable corporations to predict and react effectively to 'black swan' events like the COVID-19 pandemic to keep core business operations running smoothly.
Boost team productivity, efficiency, and output
Artificial intelligence and automation continue to transform day-to-day work of the modern corporate workforce. But it's only when corporate executives encourage innovation tied to this tech that their companies see greater operational efficiencies and, in turn, stronger financial results for the business.
"Business leaders who succeed in digital and AI transformations are completely rewiring their organizations" for the better, McKinsey noted. That includes making employees work smarter, not harder, and realize greater productivity.
This streamlined work leads to better output; the elimination of manual, repetitive tasks; and faster time to ROI.
8 types of innovation strategies
There are many kinds of innovation strategies available to scaled enterprises today.
Which innovation strategy corporations should employ depends on their short-term business needs and long-term aspirations. That said, whichever avenue they choose, it's essential there's buy-in from leadership, ample resources given to R&D and/or innovation teams, and clear metrics to gauge program success.
1) Sustaining innovation
- The goal: Improve existing products and services to meet customer needs and expectations.
- Example: Automotive brands augment vehicle models with new safety and performance features.
2) Incremental innovation
- The goal: Make small-scale fixes to products (e.g., software upgrades based on user feedback).
- Example: Apple rolls out regular OS and iOS upgrades for its mobile and desktop hardware.
3) Process innovation
- The goal: Introduce new methods of creating and delivering goods and services to drive down costs.
- Example: Starbucks launched online and in-app ordering to allow for scheduled order pickups.
4) Service innovation
- The goal: Use target-audience feedback to inform changes that can improve customer experience.
- Example: Many B2C brands use AI chatbots to help handle questions, complaints, and requests.
5) Empowering innovation
- The goal: Create a strong culture of innovation at a company to encourage employee ideation.
- Example: Google's '20% rule' urges employees to test new business ideas and gain new skills.
6) Radical innovation
- The goal: Bring new breakthrough concepts or approaches to a market and change an industry.
- Example: Amazon Web Services upended the cloud-hosting space for startups and enterprises.
7) Disruptive innovation
- The goal: Address an underserved customer segment with the goal of displacing incumbents.
- Example: Charles Hull's invention of 3D printing led to mass commercialization in the 21st century.
8) Transformative innovation
- The goal: Build business models that shift an existing paradigm and positively impact society.
- Example: Purdue DIAL Ventures is building AgTech startups to solve agriculture industry issues.
Developing an innovation strategy
Knowing where to start with creating a new innovation strategy or revamping an existing one can be daunting. Regardless of the exact innovation approach chosen, though, corporate innovation teams are best served by beginning with the 'basics': creating systems that enable efficient, continuous testing.
"Innovation teams need to be focused on gathering as many insights as they can," Elliott said on the Inside Outside Podcast. "You do that by running as many experiments as you can at the lowest possible cost per experiment because you don't know ahead of time which experiments or which insights are going to lead to the breakthroughs."
With "innovation readiness" declining in recent years, per Boston Consulting Group, it's essential for C-suites and their innovation teams to recognize the rewards they can reap through well-coordinated innovation programs by:
- Leveraging both proprietary and market data to generate, evaluate, and advance ideas
- Broadening their innovation portfolio beyond just corporate venture capital investments
- Turning to external partners, like outside venture builders, for open innovation assistance
- Selecting thoughtful, relevant innovation themes that dictate the opportunities to explore
- Defining realistic yet ambitious goals and clear metrics to determine innovation success
- Giving innovation teams the budget, personnel, and psychological safety needed to excel
In his book, "The Illusion of Innovation," Elliott notes corporations fail to execute innovation strategies that provide meaningful, tangible results. In turn, "many of these businesses are not prepared to face the future, and are in greater peril than they seem, even if they don’t yet realize it," he noted.
The best way to avoid this innovation theater is to pick a lane (i.e., strategic North Star) and allocate the necessary resources to enable innovation teams to unearth new learnings and anomalies that can drive the business forward.
