Innovation Strategy White Paper
Introduction
“In today’s world where people are already overloaded, a piecemeal approach to innovation
just doesn’t work, not if you want real, bottom line results”1. It follows then that part of any
successful organisation’s Business Strategy should be an integrated Innovation Strategy in
much the same way it incorporates a financial or HR strategy. This is easier said than done,
every organisation is different in their approach to innovation and an Innovation Strategy
cannot be just dumped in place and expected to work. An Innovation Strategy must be
applied to all aspects of the business, fit within the businesses culture and be used as a tool
by all employees.
This paper seeks to provide some background to why and how successful companies
approach innovation and provides some suggestions to how a strategy can be implemented
with a specific focus on the Innovation Strategy required for the ICEM Franchise bid.
The Department for Transport (DfT) has recognised benefits of a robust Innovation Strategy
and requires Franchise Operators who will support and embed innovation throughout their
business in order to improve customer service and operational performance, deliver
efficiency, and reduce industry costs. The requirement for an Innovation Strategy is clearly
shown in the ICEM Franchise ITT2. Bidders for the Franchise are required to provide an
Innovation Strategy which will set out how they will encourage the development of
innovative products, services and processes. The specific aspects that bidders must show
within their Innovation Strategy from the ICEM ITT are shown in Table 1 with links to
relevant sections in this document.
Table 1: ICEM ITT Innovation Strategy Requirements
Requirement
How the Franchise Operator will share innovation concepts within
its business and across the wider industry
Techniques for capturing creative ideas from employees,
passengers and other stakeholders
Details of how innovation projects are to be selected and managed
and how their success will be measured
Details of how the Franchise Operator will work with the industry






Relevant Section
(hyperlinked)
Implementing the
Innovation Strategy
Structure
Processes
People
Delivery
Portfolio Management
1
Wycoff, J., The big ten innovation killers and how to keep your innovation system alive and well,
InnovationNetwork, 2004.
2
Section 5.3.4, page 48
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in developing innovation proposals
How the themes of the Rail Technical Strategy (RTS) will be
supported
How the Franchise Operator will collaborate with the supply chain
and third parties, where appropriate, to assist in bringing new
technologies, processes, business models and products to the
market
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
Implementing the
Innovation Strategy

Delivery
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Background
For many years now innovation has been seen by businesses as critical to corporate success.
In 2004 Jeffry Immelt, CEO of General Electric Co. coined the phrase “the Innovation
Imperative” a belief that innovation is core to the success of a company and the only reason
to invest in the future3. Since then it can be argued that these sentiments have only been
reinforced by necessity following the global economic down turn. Rather than reducing
internal support for innovation companies should look to innovation to aid them through
this difficult period. In order to deal with problems created by the downturn companies
must be innovative in how they collaborate, access new markets and differentiate their
products. Whether it’s the introduction of new technologies, products, services, capabilities
or business processes – innovation plays a critical role in reducing costs, transforming
customer experience and enhancing performance. This is why successful UK companies
invest on average 1.7% of turnover in research and development4.
However, even when they accept they must innovate many companies still have trouble
understanding how to generate sustainable innovation activities. Companies within a
particular industry tend to pursue the same customers with similar offerings, using
undifferentiated capabilities and processes and they tend to innovate along the same
dimensions. In technology-based industries firms focus on product R&D, consumer
packaged-goods manufacturers tend to concentrate on branding and distribution. However
if all firms in an industry are seeking opportunities in the same places, they tend to come up
with the same innovations. Thus, viewing innovation too narrowly blinds companies to
opportunities and leaves them vulnerable to competitors with broader perspectives. A
holistic business innovation is far broader in scope than product or technological innovation.
Sawhney et al (2006)5 define business innovation as ‘the creation of substantial new value
for customers and the firm by creatively changing one or more dimensions of the business
system’.
Rather than focus on innovation something that has to occur it is helpful to focus more on
knowledge as the fundamental driver for competitive and collaborative advantage.
Successful organisations recognise that to thrive they need to find new ways of accessing
the knowledge they need when they need it in order to adapt and innovate in an ever
changing, complex and uncertain environment6.
3
J. Immelt, “The Innovation Imperative” (2004?) Robert S. Hatfield Fellow in Economic Education Lecture at
Cornell University, Ithaca, New York, April 15,2004)
4
The 2010 R&D Scoreboard, BIS, November 2010. Available online
http://webarchive.nationalarchives.gov.uk/20101208170217/http://www.innovation.gov.uk/rd_scoreboard/?
p=3 Accessed 5 January 2013.
5
Sawhney, M., Wolcott, R.C., Arroniz, I., 2006 MIT Slone Management Review, Vol.47 No.3
6
C.Nobel, “Balmer; Microsoft’s Priority is Innovation,” Oct 19, 2005, www.eweek.com
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The concept of Open Innovation (OI) expounded by Chesbrough in 20037 basically promotes
the flow of knowledge into and out of companies. Chesbrough explains that companies
underuse both their own knowledge and that of external organisations. Knowledge in this
context can be specific intellectual property such as design rights, copyright, trademarks,
patents etc. but also know how, the tacit knowledge contained within a company has must
be considered a resource. Once leading industrial companies held knowledge monopolies,
hiring the brightest and the best but this is no longer the case. No company can generate
enough ideas internally to compete with the number of potential ideas available in the
wider world. Companies need to develop innovation processes to leverage external pools of
knowledge (Figure 1 shows how Chesbrough perceives the innovation flow through a closed
and open company). Companies also do not fully benefit from the knowledge derived from
their internal R&D. Many patents lie under used and probably more importantly, significant
amounts of tacit knowledge underutilised. This tacit knowledge is easily removed from an
organisation through the movement of personnel.
.
Figure 1: Adapted from: Open Innovation, H.W. Chesbrough, 2003,
If the OI principles presented by Chesbrough are accepted then several issues begin to arise for
companies. The first of which is how to capture internal knowledge. This knowledge includes ideas
and innovations generated within the firm and, importantly the challenges faced in all aspects of a
firms operation. Once captured this knowledge must be stored in some form which can be added to
and accessed readily. Without this function knowledge will be lost and real challenges will not be
prioritised.
7
Chesbrough, H. Open Innovation: The New Imperative for Creating and Profiting from Technology, Harvard
Business School Press, 2003
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To summarise a firm’s internal knowledge can only be leveraged if it is first captured, collected
together and prioritized. A firm must also look externally for new markets of underused IP and for
new innovations in doing so how IP is used becomes much more central to a company’s core
business. Where once large companies had extensive R&D facilities they are now looking more and
more to work with smaller enterprises which have the technology they need.
In order to achieve all of the above a clear, supported Innovation Strategy is required. The following
sections of this document look at the basic needs of an organizational Innovation Strategy and steps
to take to implement such a strategy.
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The Organisation Innovation Strategy
Many organisations find it hard to come up with truly ‘new recipes’ to achieve organic
growth. They rely on continuous improvement to fulfil their growth needs. George S Day 8
describes this as the difference between "BIG I" and "small i" innovation. He argues that 80
per cent of US Chief Executives identify organic growth as being at the top of their agendas.
This organic growth, however, is difficult to sustain.
Organisations have developed a range of ways to facilitate growth though innovation. Some
organisations adopt a holistic approach by reviewing and innovating in all aspects of the
organisation. Others target innovation in their core products and services. Some encourage
using internal resources to find ideas, while others look externally.
The most successful use an appropriate combination of these methods.
A truly innovative organisation is one that values new and workable ideas in all aspects of its
operation. While product or technology innovation is important, it is only part of the story.
The need for innovation should apply to the whole organisation.
A ‘whole-organisation’ approach to innovation requires:

A commitment to innovation as a core value within the leadership and at all
organisational levels;

Access to technical skills and knowledge to provide confident, creative, well-trained
and technically proficient employees;

A culture that encourages and is willing to accept the ideas of all employees;

Systems that not only permit and reward innovation, but actively pursue new ideas;

Managers who understand what is needed to be innovative and are prepared to
actively encourage it;

Employees and managers who have the skills they need for innovation.
8 From Sustaining Corporate Growth Requires "Big I" and "small i" Innovation. Published February 21, 2007 in
Knowledge @Wharton.
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Implementing the Innovation Strategy
An innovation strategy if it is to be effective must fit
across all aspects of the business strategy, however no
“The days are gone when you
organisation springs into being fully formed, and thus
could just make a new product
the implementation of an innovation strategy must to
and customers would beat a path
some degree fit with each organisations current
to your door. To be successful in
the marketplace and establish a
structure. This doesn’t mean that the strategy should
sustainable
competitive
not affect the organisations structure. In fact the
advantage requires a combination
implementation of an innovation strategy can be used
of approaches.”
as the catalyst for directing positive organisational
Greg Zank, CTO Dow Corning,
change. An Innovation Strategy for the ICEM Franchise
2011
could be structured around the Rail Technical
Strategy’s 4C’s Carbon, Cost, Capacity and Customer.
This could help address the need for bidders to show ‘how the themes of the Rail Technical
Strategy (RTS) will be supported’. The 4C’s could be used to direct the development of
processes within each department.
It is worth looking at each of the main aspects of a business to identify first which elements
(if any) of an innovation strategy and processes are lacking, however it is most important
that the strategy is led with a vision and direct input from senior management. This is also
the first key requirement of the ICEM ITT Innovation Strategy. ‘bidders must show how they
will share innovation concepts within their business and across the wider industry’. Does
your company have an innovation vision? Successful innovative companies have a systemic
and visionary commitment to innovation which is widely communicated has clear goals and
is regularly refreshed. It follows that in order to express this vision, senior management
must be visibly engaged in the innovation agenda, if this is not the case then the leadership
approach to the innovation strategy should change. In order to measure innovation activity
and performance top level innovation metrics and targets should be integrated into overall
business performance measures and cascaded through the organisation. To what extent are these
clearly articulated within your organisation?
Are the long term future technology needs of your business captured, maintained and
communicated in such a way as to identify potential external technology sources and to
shape innovation? The benefits of doing this, effectively allows the tacit knowledge of your
organisation held within your employees to be leveraged. Solutions to challenges may
already exist and if not the challenges have been articulated and can now be communicated
to the supply chain.
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In 2000 Procter &Gamble (P&G) had to acknowledge it was facing a problem that most mature
companies need to address. Creating organic growth of e.g. 5 per cent annually had become too
difficult. Relying on internal R&D to achieve such growth targets was no longer an option.
At the time, the newly appointed CEO, A. G. Lafley, challenged his staff to reinvent the
company’s way of innovating. Most of P&G’s best innovations had come from connecting ideas
across internal businesses. And after studying the performance of a small number of products
that were acquired externally, P&G realized that external connections could produce highly
profitable innovations. In what followed, P&G created a best practice in open innovation that
ties into strong internal resources. P&G changed its approach to innovation, extending its
internal R&D to the outside world through the slogan “Connect & Develop”. “As a result, we
have access to more internal technologies than any other consumer products company. We
multiply this internal innovation capability by reaching outside P&G to a global network of
nearly two million researchers in technology areas connected to P&G businesses. This
“connect and develop” collaboration results in a bigger and stronger innovation pipeline”
Procter & Gamble: capturing a world of ideas
To what degree does the organisations articulated strategy contain an Intellectual Property
(IP) policy which guides the capture, management and exploitation of IP (patents, knowhow
copyright etc.) and has an associated metrics and targets?
Open innovation principles look to leverage unused IP by making it available to the market
place. Other organisations may be able to use your IP and thus an income stream can be
generated for unused IP. This can’t be achieved if an organisation’s IP is not managed
correctly.
The rest of the innovation Strategy can be broken down into two main sections Processes,
Organisation. In each section further questions are asked which will help you to identify
areas which are needed in your innovation strategy.
1.1 Process
An innovation process manages investment risk over time with the object of creating value
to users and / or customers.
1.1.1 Delivery
Do formal channels exist that link your knowledge of the market to your innovation
strategy? The ICEM ITT asks bidders to ‘provide details of how innovation projects are to be
selected and managed and how their success will be measured’.
Organisations should be able to capture, review, and manage market needs requirements
and translate these into a technical specification. This specification can be used as the basis
for a development activity. An effective organisation will establish and implement project
/programme plans including costs and resourcing based on these development
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specifications with clear stage gates relating to the progress of the projects. Combined with
this is a risk framework which is cross referenced against companywide objectives.
Also important in the delivery of innovation activity are methods which allow programme
managers to coordinate between projects preventing overlap and encouraging the sharing
of resources and expertise between different projects.
It must also be noted that too highly formalised and rigid systems of planning, especially
linked to very tight and detailed mechanism of control, can result in an inflexible,
hierarchical organisation with a resultant stifling of ideas and dampening of innovative
capacity9.
At HP Labs, our strategy starts with high- quality research. We amplify our research agenda with
innovation partnerships, turn our research into reality with co-innovation, and then put innovation
into the hands of millions of customers around the world. Our strategy consists of the following:
• Leading-edge research agenda: Advance state-of-the-art technologies by addressing the most
complex challenges and important opportunities facing our customers and society in the next
decade
• Open innovation: Collaborate to accelerate breakthrough technologies by leveraging the strength
of HP’s world-class innovation network
• Co-innovation and demonstrators: Work side by side with our customers to transform their
businesses with our leading-edge research
• Technology commercialization: Generate real business value by identifying the most strategic
outlets for commercializing innovations, thereby increasing the impact of technology
HP Labs Annual Research Report 2011
1.1.2 Processes
Another of the ICEM ITT’s key Innovation Strategy requirements is that bidders must
describe what ‘techniques will be used for capturing creative ideas from employees,
passengers and other stakeholders’. Many companies are putting in systems which allow
them to capture their internal assets and in some cases knowhow which can then be used to
find solutions internally to problems they may have. These systems can also be used to
express their areas of interest to the outside world and seek external innovations, Proctor
and Gamble, J&J, General Mills and Campbell Soups are all companies which do this to some
degree or other.
9
th
Johnson, G., Scholes, K., Whittington, R., Exploring Corporate Strategy, 7 Edition, Prentice Hall.
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To what extent does your organisation have a fully defined and adopted set of innovation
management processes?
The issue that arises is that the systems used by the companies mentioned above need to
be integrated into the corporate structure. If they are not part of the everyday processes
employees work with then the assets and needs will not be captured and the database
will become stagnant.
Processes for sourcing of funding both internally and externally for innovation projects as
well as entry points and opportunities for transferring external knowledge and technology
into the organisation's development pipeline are needed. The ICEM ITT requests that bids
show ‘how the Franchise Operator will collaborate with the supply chain and third parties,
where appropriate, to assist in bringing new technologies, processes, business models and
products to the market’.
Slowinski’s Want, Find, Get, Manage model has been developed as a process for
external engagement:

Want- Do you have a clear understanding of what you want and need from the
alliance? What unmet needs are you attempting to solve? What is the value of
solving this problem? What does the customer really want?

Find-Where do you look for external solutions? How do you assess whether the
solution is really the right one? What networks, Open Innovation tools, people,
and behaviors do you need to find the best partner to engage with in a long term
alliance?

Get- what process do you use to explore and negotiate a partnership? How do
you develop a fair and equitable relationship?Objectives - why is each partner
considering an alliance?

Manage- what tools, expertise and people do you have to manage the ongoing
relationship?
1.1.3 Portfolio Management
An innovative organisation will have a portfolio of innovation projects, each project needs
managing as does the portfolio to ensure the project teams are properly staffed, resourced
and monitored against the innovation strategy.
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1.2 Organisation
1.2.1 Structure
The innovation activities & methodologies mentioned above need to be structured,
integrated, communicated and shared across the company's organisational and
geographical structure. Employees need to know where the contact points are for ideas or
new knowledge they have developed or come across.
This sharing of knowledge, knowledge management and communication should be
supported by IT systems which are clear and intuitive.
1.2.2 People
Innovation is a ‘contact sport’ and innovative companies need innovative people. This is not
to say that every employee must be innovative but attracting and retaining key talent which
can drive innovation is important. Also the systems mentioned above should encourage and
support all employees to actively innovate. Performance management and reward systems
within the company can provide rewards to recognise innovation activity and successes.
The Post-it, now as indispensable to the typical office worker as a chair and desk, might never
have made it to market without 3M’s longstanding “bootlegging” policy. The company’s
program allows employees to spend up to 15 percent of their time at work developing their
ideas. That’s how 3M scientist Spencer Silver invented a light, repositionable adhesive in 1968,
although he was unsure how best to use it. He gave seminar after seminar, explaining the
advantages of his adhesive to co-workers, but he was unable to drum up much enthusiasm for
his not-so-sticky stickum. Five years later, Art Frey, one of Silver’s colleagues, noticed his
bookmarks were constantly falling out of his hymnals during choir practice. He remembered
Silver’s seminars, and in that “Eureka” moment, the Post-it was born. The product languished
until a marketing manager, Bill Shoonenberg, designed a campaign called the “Boise Blitz” to
drive sales and blanketed the state of Idaho in Post-its. The sticky notes went national in 1980
and quickly became an office-supply and household standard.
Post-it Notes: Case Study
1.2.3 Culture
The development of a true innovative culture is no trivial task especially for an established
company approaching innovation activities for the first time. However actively encouraging
innovation within the workforce supported by clear processes and reward systems is a good
start. Communication between staff at different levels and creating teams with a mix of
skills has been shown to be an effective way of developing innovative teams10. As innovative
10
West, M., Hirst, G., Richter, A., Shipton, H. (2004) Twelve steps to heaven: Successfully managing change
through developing innovative teams, European Journal Of Work And Organisational Psychology, 13 (2), 269–
299
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activities occur it is important to promote and communicate them through your
organisation, this combined with clear reward structures will encourage other employees to
take part. In order to let them do so sufficient time and support for staff to develop
innovative ideas and solutions will be needed.
1.3 Summary
An effective innovation strategy should be included within an organisations main business
strategy and act to support and fulfil that strategy. I innovation occurs in all aspects of an
organisation’s activities and should be encouraged, recognised and rewarded. Processes
need to be in place to support innovation but these should be flexible, too ridged a process
can stifle and inhibit innovation. Implementation of an innovation strategy should not be
attempted in one go across the board but each element approached and considered
carefully. The strategy can then be incorporated into the existing business in the most
effective manner and adapted to fit the current systems. If done correctly an effective
innovation strategy will alter the culture of the organisation to be an innovative one which
will in turn allow the strategy to develop and be innovative in its own right.
1.4 Resources
An Innovation Capability Maturity (ICMM) self-assessment tool has been developed by
FutureRailway and is currently in the stages of being pilot tested by rail organisations prior
to general issue and availability.
ICMM is effectively an innovation audit tool intended to be used by organisations within the
rail industry to understand and measure its own innovation maturity and capabilities. The
tool is configured as a series of questions covering the key innovation themes (listed below)
and can be used to drive or enable innovation in an organisations business.

Competitive Environment

Strategic Alignment

Innovation Capabilities

External Innovation

Organisation

Culture
The questions covered in these innovation themes provide useful guidance and prompts to
an organisation undertaking development of its Innovation Strategy and subsequently an
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Innovation Implementation Strategy. Some of the questions have been posed through the
course of this document as a prompt for the reader and the ICMM tool is very much
recommended for further investigation (FR ref).
The output from answering the questions and results can be used to help an organisation
understand the journey it needs to make in order to develop a mature innovation capability.
The outputs are designed to feed into an organisation’s corporate strategies for innovation
and help shape its capability building.
1
Resisting
Innovation
1
Competitive Environment
2
Strategic Alignment
3
Innovation Capabilities
4
External Innovation
5
Organisation
6
Culture
2
Developing
Innovation
3
Managing
Innovation
4
Optimising
Innovation
5
Championing
Innovation
Innovation themes and the stages of Innovation capability maturity (1 to 5)
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Graphical output illustrating an organisation’s Innovation capability maturity (illustrative results
only)
Illustration of an organisation’s current level and target level of Innovation capability maturity
(illustrative results only)
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