What are the key factors to consider when choosing an innovation strategy for your business?

1 Internal vs external innovation

One of the first factors to consider is whether you want to rely on internal or external sources of innovation. Internal innovation means developing new products, services, processes, or business models within your own organization. External innovation means collaborating with other entities, such as customers, suppliers, partners, startups, or research institutes, to access new ideas, technologies, or markets. Both approaches have advantages and disadvantages, depending on your industry, culture, and objectives. For example, internal innovation can give you more control, ownership, and differentiation, but it can also be costly, risky, and slow. External innovation can offer more variety, speed, and flexibility, but it can also pose challenges in terms of coordination, trust, and intellectual property.

2 Incremental vs radical innovation

Another factor to consider is whether you want to pursue incremental or radical innovation. Incremental innovation means improving or extending your existing products, services, processes, or business models to meet the changing needs and expectations of your current customers. Radical innovation means creating or adopting new products, services, processes, or business models that disrupt the market and attract new customers. Both types of innovation are important and complementary, depending on your competitive position, growth potential, and customer segments. For example, incremental innovation can help you maintain or increase your market share, customer loyalty, and profitability, but it can also make you vulnerable to disruption by more innovative competitors. Radical innovation can help you gain a competitive edge, create new markets, and generate higher returns, but it can also be more uncertain, complex, and costly.

3 Exploitation vs exploration

A third factor to consider is whether you want to focus on exploitation or exploration. Exploitation means leveraging your existing resources, capabilities, and knowledge to optimize your current performance and efficiency. Exploration means seeking new resources, capabilities, and knowledge to enhance your future potential and adaptability. Both modes of learning are essential and interrelated, depending on your environmental stability, strategic orientation, and organizational structure. For example, exploitation can help you exploit your core competencies, satisfy your existing customers, and achieve short-term results, but it can also lead to rigidity, complacency, and missed opportunities. Exploration can help you discover new opportunities, diversify your portfolio, and build long-term capabilities, but it can also require more investment, experimentation, and tolerance for failure.

4 Open vs closed innovation

A fourth factor to consider is whether you want to adopt an open or closed innovation model. Open innovation means sharing and using knowledge across organizational boundaries to accelerate and enhance innovation outcomes. Closed innovation means keeping knowledge within organizational boundaries to protect and exploit innovation outcomes. Both models have pros and cons, depending on your industry dynamics, competitive advantage, and innovation culture. For example, open innovation can help you access more diverse and valuable knowledge, reduce innovation costs and risks, and increase innovation speed and quality, but it can also entail more coordination, communication, and governance challenges, as well as potential knowledge leaks or conflicts. Closed innovation can help you maintain more control, ownership, and differentiation of your innovation outcomes, but it can also limit your innovation scope and potential, and increase your innovation costs and risks.

5 Customer-centric vs technology-driven innovation

A fifth factor to consider is whether you want to base your innovation on customer needs or technology opportunities. Customer-centric innovation means identifying and solving customer problems or desires with innovative solutions that create value for them. Technology-driven innovation means developing and applying new technologies or capabilities that create value for your business. Both perspectives are important and interdependent, depending on your market demand, technology supply, and value proposition. For example, customer-centric innovation can help you understand and satisfy your customer needs, preferences, and behaviors, and build strong customer relationships, but it can also be influenced by customer biases, expectations, and feedback. Technology-driven innovation can help you leverage and exploit your technological assets, competencies, and innovations, and create competitive differentiation, but it can also be constrained by technological feasibility, compatibility, and adoption.

6 Proactive vs reactive innovation

A sixth and final factor to consider is whether you want to be proactive or reactive in your innovation approach. Proactive innovation means anticipating and shaping future market trends and customer needs with innovative solutions that create new value. Reactive innovation means responding and adapting to existing market trends and customer needs with innovative solutions that capture existing value. Both strategies are relevant and viable, depending on your market position, foresight capability, and innovation ambition. For example, proactive innovation can help you create and lead the market, generate higher value and growth, and achieve a first-mover advantage, but it can also involve more uncertainty, risk, and resistance. Reactive innovation can help you follow and compete in the market, capture existing value and demand, and achieve a fast-follower advantage, but it can also result in imitation, commoditization, and obsolescence.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?