Co-authored with Dr. Kyle Murphy

According to Boston Consulting Group (BCG), 79% of companies worldwide see innovation as a top-three priority for 2023, and 66% plan to increase spending—42% by more than 10%. Innovation-led growth has been a top three strategic priority for businesses for decades. Still, according to the US Department of Commerce, over 90% of innovation efforts fail to achieve full success. So why is there such a large gap between expectations and results?

The gap between strategy and innovation in many organizations can be attributed to several factors, which often stem from differences in how strategy is formulated and how innovation is managed. Key reasons for this gap are:

• Divergent Goals: Misalignment occurs when a company’s strategic goals are not fully integrated into its product management process. This lack of cohesion can lead to products that fail to address the needs and expectations set by the overarching strategy.
• Resource Allocation: The misallocation of resources is a common consequence of strategy and product misalignment. When resources are not directed toward products that align with the company’s strategic goals, innovation efforts can be wasted, resulting in an innovation gap. Without adequate resources, innovative ideas cannot be developed or tested effectively.
• Communication Breakdowns: A lack of effective communication between those who formulate strategy and those who work on innovation can lead to misunderstandings. Often, innovation is not effectively integrated into the strategic planning process. Innovation might be seen as a separate, sometimes ad-hoc activity rather than a core component of strategy. Additionally, product management may not have a clear understanding of strategic goals, and strategists may not be fully aware of the potential of emerging innovations.
• Process Inflexibility: Traditional strategic planning processes may be too rigid or slow to adapt to the fast pace of innovation. This inflexibility can prevent the incorporation of innovative ideas into strategic planning.
• Risk Management: Strategic planning often includes mitigating risks, which can be at odds with the inherent risks of pursuing innovative projects. This risk aversion can lead to playing it safe rather than pursuing potentially disruptive innovations.
• Talent and Skills Gap: There might be a gap in the skills and talents required for innovation and those available within the organization. This gap can hinder the development and implementation of innovative ideas.
• Measuring and Rewarding Success: The metrics used to measure success in strategic initiatives and innovation efforts often differ. If innovation is not measured and rewarded appropriately, it may not get the attention and resources it needs.
• Leadership and Vision: Sometimes, the leadership may not have a clear vision or understanding of how innovation can drive strategic goals, leading to a disconnect between strategy and innovation.
• Lack of longer-term thinking: Companies, especially start-ups and younger companies, focus on the one product they initially launched and forget about filling the pipeline with something new that can fill the gap once the initial product reaches its peak and starts to decline. This can happen very fast these days as customer preferences can shift rapidly.

The Impact on Innovation:

1. Reduced Speed to Market: Companies with misaligned strategies and product development processes often face delays in bringing new products to market. This reduced speed to market can be detrimental in industries where being the first to innovate is a crucial competitive advantage.
2. Ineffective Use of Technology: Companies experiencing misalignment tend to adopt new technologies without clearly understanding how these technologies support their overall strategy. This results in a lack of synergy between technological advancements and the company’s long-term goals.
3. Customer Disconnect: Misaligned products may not resonate with the target audience, leading to a disconnect between customer expectations and the actual offerings. This gap can result in customer dissatisfaction and a loss of market share.
4. Empty Product Pipeline: Lack of long-term thinking, planning, and resource allocation often means insufficient focus on innovation and filling the pipeline with new, innovative ideas and products. Once the current products reach the end of their lifecycle and generate less revenue, there are no new products to replace them and subsequently, a drop in revenue.

Bridging the Gap:

1. Integrated Planning: Companies can bridge the gap by seamlessly integrating their product development plans into their overall business strategy. This involves cross-functional collaboration and communication to align product roadmaps with strategic goals.
2. Continuous Evaluation: Regularly reassessing the alignment between strategy and product development is crucial (Innovation Diagnostic). Companies should establish mechanisms for continuous evaluation and adjustment to ensure ongoing synergy.

To bridge the innovation gap, organizations must align their strategic goals with innovation efforts, foster a culture supporting innovation, ensure adequate resource allocation, improve communication between strategists and innovators, and integrate innovation into strategic planning. Additionally, adapting risk management to be more innovation-friendly and developing appropriate metrics for measuring innovation can help bridge this gap.

Sources:

• Sull, D., Homkes, R., & Sull, C. (2015). Why Strategy Execution Unravels—and What to Do About It. Harvard Business Review.
• Delicado, N., & Marques, P. (2015). The effects of resource misallocation on innovation in organizations. Journal of Product Innovation Management.
• McKinsey. (2016). Six Building Blocks for Creating a High-Performing Digital Enterprise.
• MIT Sloan Management Review. (2018). Reshaping Business With Artificial Intelligence.
• Journal of Business Research. (2018). The alignment of corporate social responsibility and corporate strategy: A case study.