Managing Innovation through Dual Planning Systems

One of the issues a firm’s corporate directional strategy faces is about deciding its orientation towards growth. When a firm chooses to grow internally, innovation becomes the key driver to achieve that growth. Growth-oriented companies incorporate some kind of technology to generate innovation, and through innovation, they create a competitive advantage. Therefore, innovation provides a link between technology and competitive advantage. Moreover, firms in their quest to create value cause them to invest in innovation.

Product or process innovation involves idea generation, research, design, and development, manufacturing, and marketing activities. The term “innovation” described in this article means innovation in technology-based industries where technology is a key driver for change and innovation and remains the main source of competitive advantage. However, innovation is a complex process that requires a commitment to long-term investment of resources and capabilities, involves high risk, and requires patience and cross-functional capability of integrating resources and different technologies. That is why long-range planning and the appropriate selection of technologies and markets are essential steps before designing a firm’s innovation strategy.

Strategic Planning for Innovation

The management of innovation through long-range planning is not new. It has been, for example, widely practiced for over half a century by defense and space research organizations all over the world. Before the evolution of strategic management, strategy formulation was known as long-range planning, and the short-term R&D plans (project plans) used to be implemented through standard project management tools and techniques that were available during that time.

The strategic planning process for innovation becomes a part of the firm’s overall strategic planning process, while the mission statement emphasizing innovation is normally included in the firm’s mission statement. In short, these two processes run in parallel. The management of innovation is a strategic management process that can be considered as comprising two planning periods: 1. Long-range planning (strategic planning for innovation) that operates over a three to five-year period or longer, and 2. Short-term planning for strategy implementation that operates over a one or two-year period. Long-range planning is conceptually viewed as the dynamic part of strategic management, which is a strategy as direction (preparing for the future)-to develop vision, build new capabilities, gain market leadership, increase profitability and reduce debt, etc. The short-term planning horizon is viewed as the static dimension of strategy (competing for the present) that focuses on improving a firm’s competitive position, strategic fit, and performance. In most successful organizations, the long-term and short-term planning becomes a continuous process, as the short-term success only comes on account of the long-term moves the firm made earlier.

This concept of dual planning systems to manage innovation also fits into Mintzberg’s “planning mode” of making strategic decisions. While operating in this mode, a firm proactively looks for new opportunities (for the long-run) and simultaneously tries to find solutions to the existing problems (for short-term activities). The most successful technology-intensive organizations also operate in this mode because this mode includes the components of strategic management (helps in making strategic decisions) and is more appropriate to keep pace with today’s complex and rapidly changing environment.

Managing Change

Technological innovation is closely linked to organizational change because the commercialization of innovation involves considerable organizational change. And the practice of strategic management (due to its dual planning systems) is an indispensable tool to manage this strategic change. The other most important tool to manage strategic change is to build new capabilities- by performing knowledge management activities.

The Dual Planning Systems Combine to Become an Ambidextrous System

In this context, a strategic management system can be considered as comprising two planning systems. And due to this dual planning feature (doing two things), the strategic management system can also be considered as an ambidextrous system. O’Reilly and Tushman propose two essential conditions for an organization to be ambidextrous: firm’s ability to “survive in the long-term,” and “develop capabilities” to survive under changed market conditions. A strategic management system satisfies these conditions because it essentially involves making strategic decisions that determine the long-run performance of the firm and managing innovation and strategic change requires building new capabilities, and to achieve this long-range planning (strategy formulation) is essential.

Portfolio Management (PM) helps Implementation and Adds-Value

Portfolio management helps to bridge the gap between these two planning systems, as described above. It provides a systematic structure to all short-term plans that are necessary to achieve the firm’s goals and strategy and adds value to the overall value created by the strategy. Thus, the long-term innovation and new product development goals and strategies are transformed into initiatives that are influenced by environmental factors, establishing the new product development (NPD) portfolios, programs, and projects to be implemented. Implementing innovation and new product development (NPD) strategies through portfolio management considerable improves the overall effectiveness of the strategic management system (or dual planning systems).

References and Further Reading

1. T. L. Wheelen & J. D. Hunger, Strategic Management & Business Policy (NJ: Prentice-Hall, 2000), Chapters 1, 4 & 11.
2. R. M. Grant, Contemporary Strategy Analysis (United Kingdom: John Wiley & Sons, Ltd., 2013), Chapters 1, 8 & 9.
3. Paul Trott, Innovation Management and New Product Development (United Kingdom: Pearson Education Ltd., 2017), Chapters 1 & 4.
4. Derek F. Abell, Managing with Dual Strategies (NY: The Free Press, 1993), Chapter 1.
5. C.A. O’Reilly and M. L. Tushman, “Organizational Ambidexterity: Past, Present and Future,” Harvard Business Review (May 2013), p. 15.
6. The Standard for Portfolio Management, Project Management Institute, 3^rd Edition.
7. Ashok N., Strategy Implementation through Portfolio Management, A&N Strategy Consulting (December 15, 2014).
8. Robert G. Cooper and Scott J. Edgett, Product Innovation and Technology Strategy (USA: Product Development Institute Inc., 2009).