Strategic Innovation versus Sustaining Innovation

Daniel Saunders

Chief Executive Officer

Strategic innovation vs sustaining innovation—what’s the difference?

For most firms, innovation means marketing the inventions your R&D department produces. With this strategy, you achieve what is known as “sustaining innovation,” where you make minor but consistent improvements year-on-year. By concentrating only on sustaining innovation, businesses miss strategic innovations that radically transform markets and can become irrelevant overnight.

Strategic innovation and sustaining innovation are very different, from the solutions they create and the timeframes they operate within to the degree of financial returns they produce. Businesses that have mastered both generate 2.4 times more profit and safeguard themselves against short and long-term competition.

The difference between strategic innovation and sustaining innovation 

Sustaining innovations produce small performance-based enhancements to existing products, services or business models. Typically, most companies have an established sustaining innovation practice in the form of an R&D department.  

Sustaining innovations meet customer and market demands and are essential to remaining competitive in the short term (but are easily copied). Examples of sustaining innovations include new models of the Dyson hoover launched yearly or upgrades to Windows software.

On the other hand, strategic innovation develops new markets, technology, or business models. It’s also referred to as disruptive, radical, or transformational innovation. While such breakthrough innovations occur less often, they deliver significantly higher financial returns and long-term competitive edge. Examples of strategic innovation include Uber (market innovation), personal computers (technological innovation), and StitchFix (business model innovation).

What often happens is that businesses attempt to do strategic innovation within their established sustaining innovation process. But it’s a mistake to do both kinds of innovation inside a system intended for just one. Consequently, a Frankenstein process that isn’t best suited for either type is created. Let’s explore what the best approach is instead. 

Strategic and sustaining innovation systems

Strategic and sustainable innovation have distinct requirements, from different decision-making processes to separate project management styles. However, many businesses attempted to pursue both forms of innovation, often under a sustaining innovation system. 

To explain why this is a problem, let’s imagine you have an existing sustaining innovation system in place. The key metric to evaluate innovations is the estimated ROI within 12 months.

If you attempt to introduce strategic innovations into this system, they will never see the light of day. Within the sustaining innovation system, the ROI metric is used to prioritise ideas. But strategic innovations take a long time to generate ROI, and the high uncertainty makes it difficult, if not impossible, to estimate.

The people working within this existing system are also rewarded based on metric performance; given the above, they will default to safer bets that will provide a quick ROI (those produced by sustaining innovation.) It’s for such reasons that two distinct pathways are needed if you wish to adopt strategic and sustaining approaches properly. 

Below illustrates five dimensions where differences occur between the two forms of innovation. 

The table below provides examples of such differences. Understanding this helps to develop the two systems tailored specifically to each form of innovation. 

As an example, a strategic innovation system requires the following;

1. Strategy: Exploration of the business model.
2. Operation: Agile test and learn project management approach. 
3. Organisation: Collaboration with external parties. 
4. People: Teams with agile project management expertise.
5. Metrics: Decision criteria to consider longer-term ROI.

A dual-path approach

Once you have established the systems needed (based on the five dimensions above), it’s time to consider how these elements work within your organisation. The below shows a dual-path approach which we recommend. Using this with your existing Open Innovation solution or New Ventures, will seamlessly fit into this model too. 

It is important to prioritise all incoming ideas and allocate them to either the strategic or sustaining path. This is done by evaluating the level of newness (to the world and company) and can be plotted on the canvas below. 

Summary 

Established businesses must acknowledge that sustaining innovation is insufficient in a world of disruptive startups. For short and long-term survival, sustaining and strategic innovation is necessary. But poor results occur when strategic innovation is forced into a sustaining innovation system.

Companies must develop two distinct systems tailored to each innovation approach to succeed. Once the pathways are established, incoming ideas from any source can be evaluated based on their “newness” to the company and world. 

Following this dual path approach protects any sustaining innovation practices you already have from being adapted in a vain attempt to accommodate both forms of innovation. Instead, the dual path approach provides the ideal conditions for each form of innovation to thrive, providing short and long-term advantages and significant financial returns. 

18/01/2022