Strategic leaders are charged with a vital responsibility: They must provide their organization with the innovative methods necessary to retain and gain market position while improving profit margins. Not an easy task, but one made possible with the strategic innovation philosophy of Strategos, a global services firm that helps companies increase the speed and quality of innovation within their businesses. Strategos consultants provide companies with a capacity for corporatewide innovation, enabling them to transform existing business models, invent new businesses, and launch breakthrough products.

In this exclusive EDT Learning interview, Strategos CEO and founding partner Peter Skarzynski reveals some of the basic tenants of his company’s philosophy. 

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EDT Learning: How are strategy and innovation linked? Can you have a successful strategy without innovation?

PETER SKARZYNSKI: I think the traditional notion of strategy within an organization has been to do planning, to allocate resources. For Strategos, strategy innovation is not about resource allocation and not about planning for the next three months. It’s about strategizing at the level of the industry and understanding what one needs to do to transform the industry. It’s about setting the rules that others are compelled to follow. It’s about setting the industry’s transformation agenda. In that context, strategy and innovation are quite tightly linked.

EDT Learning: The joining of innovation and strategy seems more important now than it has in years past. Why is that?

PS: We’re living in a discontinuous world. We’re living in a world in which we’ve reached the end of incrementalism. Organizations, up until this point, have done a great job at growing the bottom line, but they haven’t grown the top line. Moreover, the ability for one to create a sustaining position off of a given strategy or given product has become more difficult. The life cycle of that strategy or product has become shorter and shorter. As strategy life cycles get shorter and shorter, as we live in a world of discontinuous change, the issue of nonlinear innovation and breaking the rules becomes more and more important.

EDT Learning: You’ve been quoted as saying that for companies to innovate, they may have to stop doing some things that made them successful in the first place.

PS: They have to critically look at the things that have made them successful and understand which of those keep them from radical growth, keep them from transforming the industry. So yes, sometimes it means stopping or changing the very thing that drove the success.

EDT Learning: The business landscape has changed in the last year. Which companies do you point to now as successful strategic innovators?

PS: Nokia is an example of a company that has successfully migrated from one business model to another over the last few years. Charles Schwab is a fantastic example in financial services. The list of those that have been successful is much smaller than the list of those who have not been successful or have tried and failed. Strategic innovation is a very difficult thing to do.

EDT Learning: Can you put your finger on why these companies succeeded?

PS: As we’ve worked with large global 1000 companies, we’ve seen, as my colleague Gary Hamel would describe it, three deadly sins. There’s arrogance – “What we’ve always done will continue to work.” There’s denial, which says, “I see the data shows we’re losing market share and not growing as fast as we once were, but we’ll just fix this problem with cost cutting.” And there’s nostalgia – nostalgia for the way things were once or for a vision of success that never was very realistic. Companies that are successful avoid those three deadly sins: 1. Arrogance that we will always be successful doing what we’ve always done. 2. Being realistic, looking in the mirror and saying there is something going on here, not being in denial. 3. Nostalgia for an old business model that has since decayed or is decaying.

EDT Learning: You’re suggesting that companies have an openness to change that does not seem very common. Are those difficult mindsets to accomplish?

PS: It certainly requires a commitment on the part of leadership. But the change does not need to start at the top. From our experience, change can start in many parts of the organization. The challenge to leaders is that they have to create the right environment for business concept innovation and to be able to foster and focus that in a very productive way. It’s hard, but it beats the alternative. Just ask the people at Montgomery Wards.

EDT Learning: You advocate something called an “innovation engine.” What do you mean by that?

PS: It’s a term that sometimes leads to confusion. This is not an approach that says, “Let 1000 flowers bloom.” This is not an approach that says, “People should not focus on the day-to-day business.” This is not an approach that says, “You don’t have to focus on the basics.” This is an approach that says, “In your organization you have to create the right environment, the right market, if you will, where you can let new business concepts emerge. And the right market where you can let innovation capital and entrepreneurial capital flourish. Typically, most organizations think about the traditional aspects of managing “the business.” They don’t think about creating a future in terms of building proprietary foresight and de-risking big bold visions. We describe it at Strategos as revolutionary goals through evolutionary means. I think the organization that can tap in to the imagination and entrepreneurial capital as catalysts for creating structural capital (assets, brand, customer interface, historical relationships) and intellectual capital (IP, collective know-how) will be successful.

EDT Learning: Are the organizations you see as successful, those that incorporate this strategic innovation, reacting to crisis or enacting planned procedures?

PS: There is a lot of discussion by so-called management experts that one needs a burning platform in order to fundamentally change an organization. In one respect that’s right and in another respect that’s wrong. Where it’s wrong is, some managers in applying the broad concepts say, “Unless the ship is burning, people won’t change.” When Nokia went about re-inventing the mobile phone business, they went about it not from a position of crisis, but by creating a sense of urgency and importance to create a sustained industry-leading position. So there does need to be a forcing function. Some people call it a crisis; I call it a compelling vision of the future. But one can’t do it with the same old management techniques of managing the business day to day. And one can’t do it with a bit of passion. There needs to be passion and energy in the conduct of strategy and in creating the future; otherwise, why would people sign up for it?

EDT Learning: When some decision makers consider innovation, they picture an entire overhaul of the organization. Is that the best way to do it?

PS: It is certainly not the best place to start. Have revolutionary goals, but achieve them through evolutionary means. Have the big, broad audacious goal, as some would call it (we just think of it as strategic intent). But working from the future back, understand what you can do this year or next year to take a positive step forward toward that vision. We don’t think that out-of-the-box companies ought to be making billion-dollar bets. That is why many mergers don’t create a lot of value. Instead, we start with a broad premise of what a new business opportunity is and suggest that organizations give a team a very small amount of resources – $100,000 or $1 million – and it’s only by achieving certain milestones that more and more capital is released. At that broad level, it’s not dissimilar from what a venture capital firm would do – tying funding to specific milestones. I think that organizations tend not to do that very well. They want to make big bets.

EDT Learning: In light of the innovative frenzy that has taken place in the last few years, is your approach a common-sense way of going forward without risking too much?

PS: There’s a lot of value that’s going to be created, but there has been a lot of value that will and has been destroyed through this innovation frenzy. We think that the organizations that will be successful at creating new wealth will be those who will be able to build an innovation pipeline within their organization. These businesses will be able to create markets for capital, markets for talent, and markets for ideas inside their organizations. Successful organizations will be the ones that set the transformation model for the industry. Too many organizations think at the level of product or at the level of markets, and that’s too narrow of a definition.

EDT Learning: When you introduce your business philosophy to top-level decision makers, do they “get” what you’re saying, or do you get blank stares?

PS: I find that there are tough questions, but no blank stares. The message that I’m conveying is inescapable: You cannot cut costs to prosperity. You cannot achieve industry success by copying competitors. You cannot create a differentiated position by doing for the customer what everyone else does. The tough questions I get are: “How do you make it work?” “How do I overcome the entropy of a large organization and get things started?”

EDT Learning: What would you recommend people read in order to get a better understanding of what you’re saying?

PS: What we tell our clients is that if you want to see the future, if you want to build proprietary insights into what is publicly available data, you ought not to read the regular industry trade magazines. You ought to be looking at all kinds of trade publications from very different kinds of industries. Look for the themes that cut across those industries. In other words, look broadly across the area of politics, regulation, economics, lifestyles, and demographics. Look for the portents for substantial change and how they might suggest revolutionary change. You’re not going to get this by reading a book. You’re going to get it by being very broad in your perspective of the world.

Peter Skarzynski (pskarzyn@strategos.com) is CEO and a founding partner of Strategos (www.strategos.com). Peter's experience cuts across consumer products, energy, telecommunications, and high technology. Prior to Strategos, he was vice president of consumer products at Gemini Consulting. He also worked with First Consulting Group, where he focused on design and implementation of enterprise-wide system solutions.