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Building an Innovation Strategy that Works: A CEO’s Playbook for Staying Ahead in a Changing Market

by | Aug 14, 2025 | Business - General, BusinessFitness, Excellence, Growth, HR & Personnel, Leadership, Risk, Strategy, Success | 0 comments

Innovation Strategy denoted by a graph line trending upward showing the 3 innovation horizons.
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“If you do what you’ve always done, you’ll get what you’ve always gotten.” – Tony Robbins

 

Introduction

How many “great ideas” from your last team away-day are now gathering dust in a spreadsheet? You’re not alone. For many SMEs, innovation has become a byword for unstructured brainstorming sessions – bursts of enthusiasm followed by months (or years) of inaction that lead nowhere. The result? Wasted time, frustrated teams, and a portfolio of “zombie projects” that never quite live or die.

It’s not about chasing trends or brainstorming endlessly. It’s about making selective bets aligned to your growth plans. This article gives you a practical blueprint to build an innovation strategy that actually works.

Consider the case of Innocent Drinks. Starting with three university friends selling smoothies at a music festival, they identified a gap in the UK market for healthy, ready-to-drink products with a quirky, human brand voice. Their innovation wasn’t about inventing smoothies – it was about packaging, positioning, and brand storytelling that resonated deeply with their target audience. Within a decade, they’d become a market leader and eventually an acquisition target for Coca-Cola.

The lesson? Innovation isn’t about throwing ideas at the wall to see what sticks. It’s about identifying the right opportunities, aligning them with your growth strategy, and executing with precision.

In last week’s article, The Innovation Advantage: How SMEs Can Beat Big Corporations, we explored why innovation offers SMEs a unique competitive edge. This week, we turn to the how: building an innovation strategy that works in the real world.

Companies that treat innovation as a hobby rarely scale. Those that embed it into their core strategy become market leaders.

 

What Innovation Means for SMEs – In Plain English

Let’s start with a clear, practical definition:

Innovation = Value × Feasibility × Timing

For an idea to be genuinely innovative for your business, it must:

  • Create value for your customers or your business by solving a real problem.
  • Be feasible given your resources, capabilities, and constraints, so your team can deliver it.
  • Come at the right time to take advantage of market trends, technology, or customer readiness, together with your ability to act on it.

Timing is often the overlooked factor for SMEs. A brilliant idea introduced two years too early might flop due to lack of market readiness; two years too late, and you’re chasing a saturated space.

Importantly, innovation is not the same as invention. You don’t have to create something entirely new to the world. It’s about solving real problems in a way that moves the needle for your business – whether that’s a new product, a fresh approach to service delivery, or an internal process that slashes costs and significantly boosts speed.

Why Innovation Strategies Fail

Many businesses, large and small, fall into familiar traps with their innovation efforts:

  • Innovation for innovation’s sake – pursuing novelty without strategic alignment.
  • Death by committee – endless brainstorming and “decision by consensus” that kills momentum.
  • No selection criteria – endless brainstorming with no agreed framework, an environment where every idea is treated equally so nothing progresses, or enthusiasm rules and the potentially impactful ideas never get off the ground.
  • Disconnect from core strategy – projects that excite the team but don’t advance the business’s goals, or even divert the business from these.
  • A Culture of Fear – in a business where failure is penalised, nobody will risk trying something new. A successful innovation strategy requires a culture that celebrates learning from intelligent experiments, even those that do not succeed. This is foundational to both resilience and a healthy company culture.

As I discussed in previous articles (see below), creativity needs structure to become innovation, and strategy must precede tactics otherwise you can waste time and resources going in the wrong direction. And remember how the targeted use of emerging tools such as AI can transform operations without bloating overheads.

Jason Goldberg’s The Art of Scale reinforces the point: SMEs can win by identifying niches they can dominate, keeping fixed costs low, and leveraging technology and outsourcing – all of which depend on deliberate, focused innovation.

Related articles:

 

Setting the Ambition – The Horizon Mix, Minus the Jargon

Not all innovation is equal. Some ideas improve what you already do. Others open new markets. A few redefine your business entirely. One of the best tools for balancing short- and long-term innovation is the Three Horizons model – but we’ll skip the consultant-speak and keep it practical.

  • Horizon 1 (H1): Incremental improvements or optimisations to your core business in the next 6–12 months. Think process tweaks, service upgrades, or new features for existing customers. H1 innovations typically show returns quickly and require minimal risk. They’re your innovation bread and butter – the foundations that fund more ambitious projects.
  • Horizon 2 (H2): Emerging opportunities adjacent to your current business, with the potential to scale over, typically, 12–24 months. These might involve entering a new customer segment or offering a related service. H2 innovations require more investment and carry higher risk, but offer significant growth potential. They’re about expanding your market footprint systematically.
  • Horizon 3 (H3): Transformational plays that could redefine your business in 24+ months. High risk, high reward, such as entering entirely new markets, or adopting a radically new technology – but not the majority of your focus. H3 innovations are your strategic insurance policy against disruption and your pathway to market leadership.

The key is to balance your activity across these three horizons, making the best use of your resources. For SMEs, a realistic allocation might be 70 percent H1, 20 percent H2, 10 percent H3. That way, you’re delivering value now, exploring the near future, and making small bets on long-term disruption – without overextending.

The Horizons framework ensures that your innovation portfolio supports sustainable growth rather than gambling everything on a single ‘moonshot.’ As we explored in my series on Scaling Your Business for Growth (May, 2025), growth requires balancing core performance with the pursuit of new opportunities.

Your ambition should be specific, measurable, and tied to your growth strategy. Without it, you risk chasing whatever’s shiny this month – and losing sight of the bigger picture.

Related articles:

 

Where to Play – Choosing Your Innovation Battlegrounds

Once you know your ambition, the next step is deciding where to compete. Here’s one of the areas where SMEs have a huge advantage: proximity to their customers.

The Jobs-to-Be-Done Lens

Start by identifying high-potential customer problems or pain points. The Jobs-to-Be-Done framework is useful here: customers don’t buy products; they “hire” them to do a job. Your innovation strategy should ask:

  • What progress is the customer trying to make?
  • What’s frustrating or inefficient about current solutions?
  • Where are the gaps in the market?

For example, a bakery customer isn’t just buying bread – they might be hiring you for convenience (“I can also grab lunch here without queuing in a supermarket”), health (“This loaf fits my dietary needs”), or indulgence (“This is my Friday treat”). Understanding the “job” lets you innovate in ways that directly improve their lives.

This thinking helps SMEs uncover niches where they have unique insight or less competition. It’s not about being everything to everyone – it’s about being indispensable to some.

Methods to Uncover Opportunities

Methods for uncovering unmet needs include:

  • Direct conversations with customers and frontline staff.
  • Data analysis of usage patterns, complaints, and churn.
  • Observing customer behaviour in real-world contexts.
  • Short, focused surveys with rapid feedback cycles.

Your size and agility mean you can test and adapt faster than larger competitors. You can run small pilots, adjust based on feedback, and launch improvements while bigger players are still drafting their project plans.

For a deeper look at this process, see the articles referenced below – both show how aligning innovation with real customer needs creates sustainable growth paths.

Related articles:

 

How to Win – Leveraging and Building Distinctive Assets

Once you’ve decided where to play, the question becomes: how do you win?

For SMEs, success often rests on the assets you already have, and how you enhance them rather than trying to reinvent the wheel.

Your Built-In Advantages

Start by inventorying your current strengths, such as:

  • Speed and agility in decision-making – the ability to go from idea to action without weeks of approval cycles.
  • Proximity to customers – you know your clients by name, hear their feedback directly, and can adapt in days, not months.
  • Specialised knowledge or niche expertise – insights that larger competitors can’t replicate quickly.

Building New Capabilities

Then identify the capabilities you need to build:

  • Skills: Upskill your team in areas like AI, automation or customer experience.
  • Partnerships: Collaborate with tech providers, consultants, or other SMEs in complementary areas.
  • Technology: Use automation tools to scale without a proportionate increase in overheads.

Protecting Your Advantage

And don’t forget to protect your innovation advantage through:

  • Distinctive branding – ensure customers associate your unique solution with you, not the category in general.
  • Superior customer experience – one of the hardest things for competitors to copy.
  • Efficient internal processes – enabling you to deliver faster, more reliably, and at better margins.

Related articles:

 

Lightweight Governance – Keeping Innovation Disciplined but Agile

Innovation needs structure – but not bureaucracy – and this is where many SMEs either overcomplicate or under-manage innovation. Too much bureaucracy and nothing moves; too little oversight and resources vanish into pet projects.

A practical governance setup includes:

  • An innovation owner – not necessarily the CEO, but someone accountable for driving the innovation agenda. As The Art of Scale reminds us: every key initiative should have a single owner, with others contributing.
  • A clear decision cadence – for most SMEs, a monthly innovation forum works well. Keep the group small and empowered, and the agenda focused on progress updates, decisions, and next steps.
  • Budget bands – allocate innovation funds in line with your Horizon mix (e.g., 70% to H1, 20% to H2, 10% to H3), with clear parameters for when to continue or halt projects so as to ensure you don’t waste precious funds. Allocate these budget bands according to your Horizon planning:
    • Horizon 1: Quick wins need rapid, small investments, albeit the largest budget overall.
    • Horizon 2: Moderate budgets for more exploratory work.
    • Horizon 3: Reserve resources for transformational bets, but only after rigorous testing.
  • A two-page innovation brief to ensure every idea is evaluated on merit, not charisma:
    • Page 1: The Opportunity – problem statement, proposed solution, target customer, “job to be done”, strategic alignment and Horizon category.
    • Page 2: The Ask – assumptions to test, proposed experiment, resources needed, success criteria, and who’s involved.

This ensures a consistent yet lightweight governance structure that creates a rhythm to maintain momentum without smothering creativity, so keeping your innovation focused, accountable, and testable.

Related articles:

 

Kill-or-Scale Rules – Avoiding ‘Zombie’ Projects

One of the biggest drains on SME resources is the “zombie project” – initiatives that are clearly not working, yet linger on out of habit or hope. SMEs can’t afford to let poor experiments stagger on, which is why you need clear kill-or-scale rules.

When to Kill, Pivot, or Scale

To prevent this:

  • Define pre-agreed criteria for stopping, pivoting, or scaling projects, such as:
    • Customer traction: Are people engaging or buying?
    • Strategic alignment: Does it support your growth goals?
    • Learning velocity: Are you gaining insights fast enough?
  • Cost/benefit ratio: Is it worth the investment?
  • Use a decision matrix:
    • Kill: cut losses quickly when evidence shows the concept will not work.
    • Pivot: change direction based on feedback or market shifts.
    • Scale: commit more resources to proven winners.

Decisions should be evidence-based, not driven by sunk cost bias or internal politics. Being objective and decisive frees up capacity for projects with real potential – and builds a culture where learning from failure is part of progress.

Related articles:

 

Metrics That Matter – Tracking Real Progress

If you don’t measure it, you can’t manage it – but in innovation, measuring the wrong things can be worse than not measuring at all. Not all metrics are created equal, so focus on those that show real progress.

Leading Metrics

Leading metrics are used to look ahead at likely outcomes. These include:

  • Learning velocity – how quickly you can convert ideas into tested concepts and gain useful insights.
  • Cycle time – average duration from idea to decision (kill/pivot/scale).
  • Pipeline health – number of active projects across horizons at each stage.
  • Team engagement – participation in innovation activities.

Lagging Metrics

Lagging metrics look at what has happened in order to establish whether continuation is appropriate.

  • Percent of revenue from new products or services launched in the past 24 months.
  • Customer satisfaction improvement levels linked to innovations.
  • Cost savings from process innovations.
  • Market share growth in targeted segments.

Avoid vanity metrics like “number of ideas generated” or “hackathon attendance” – they say nothing about actual impact.

To track your selected metrics, design a simple dashboard with 5-7 key metrics you track monthly, and review these deeply each quarter. These should be linked to strategic goals and continuous improvement efforts, driving action, not just measurement.

This topic will be expanded in the next article, Measuring What Matters: Proving Innovation ROI and Managing Your Portfolio.

Related articles:

 

SME Takeaways – Tools You Can Use Today

To help you put this into action, here are a few tools you can implement immediately to start building your innovation strategy

One-Page SME Innovation Strategy Template

  • Vision: In one sentence, how will we grow over the next 3 years?
  • Horizon Mix: Where are your efforts going – core, adjacent, transformational?
  • Focus Areas: Clear battlegrounds, target customer problems, or unmet needs.
  • Distinctive Assets: What do you have, what do you need to build?
  • Governance: Who owns it, how is progress measured?
  • Metrics: Your five key stats, highlighting the number one innovation metric you’ll focus on improving this year.

Monthly Innovation Forum Agenda

  1. Update on current projects (owner reports)
  2. Review experiments: outcomes, lessons, quick pivots or kills
  3. Celebrate wins (even if small)
  4. Surface new ideas linked to strategic goals
  5. Review KPIs and dashboard metrics
  6. Alignment check with overall business plan

Starter Metrics Set for SMEs

  • Revenue from new products/services
  • Average time from idea to first customer test
  • Number of customer pain points addressed
  • % of team involved in innovation projects
  • Customer feedback scores for new offers

Pair these with The Art of Scale principles to maintain focus, agility, and cost discipline.

 

Conclusion & Call to Action

Innovation strategy isn’t about having more ideas – it’s about building systematic competitive advantage through disciplined execution. The difference between SMEs that thrive and those that struggle often comes down to this: treating innovation as a strategic discipline rather than a creative hobby.

Your innovation strategy should reflect these principles: selective focus on high-impact opportunities, systematic processes for decision-making, and relentless execution on the things that matter most.

The framework we have explored – from horizon planning to lightweight governance to evidence-based decision-making – gives you everything needed to transform innovation from expensive experimentation to a strategic weapon.

Stop chasing every interesting idea. Start building a repeatable innovation engine that creates sustainable competitive advantage.

Next week, we’ll take this further in Turning Ideas into Reality: The Essentials of a Lean R&D Programme, showing you how to move from strategy to execution with speed and efficiency.

 

Next Steps:

In the next week, complete your one-page innovation strategy template, audit your current innovation efforts using the zombie project criteria, and identify your innovation champion.

Quick Win: Spend an hour this week shadowing your customer service team or reviewing recent client feedback. What patterns emerge? What problems do customers mention repeatedly, even in passing?

 

It’s your turn now:

“Looking at your business today, would your innovation activity show a deliberate strategy… or is it a collection of good ideas waiting for their moment?” Let’s hear your experiences with innovation in your scaling business – use the comments section, or feel free to drop me an email directly.

 

FAQs – Top 10 Questions About Building an Innovation Strategy:

1. What is an innovation strategy for SMEs?

It’s a structured plan that defines where and how your business will pursue innovation to achieve growth, balancing short-term improvements with long-term opportunities.

2. Why do SMEs need an innovation strategy?

Without one, innovation efforts can become scattered, wasting resources on projects that don’t align with your business goals.

3. What’s the first step to building an innovation strategy?

Start with a one-page strategy template. Define your ambition, focus areas, governance, and metrics.

4. What are the biggest mistakes SMEs make with innovation?

Common pitfalls include chasing ideas without a clear strategy, or pursuing those not aligned with your core strategy, failing to measure impact, avoiding difficult ‘kill’ decisions, and overcommitting to long-term bets without securing the core business.

5. How much should SMEs invest in innovation?

It varies, but a balanced approach like the 70/20/10 Horizon mix ensures most resources focus on improving the core business while still exploring future opportunities.

6. What are ‘zombie projects’ and why are they harmful?

They are initiatives that consume resources without delivering results, often kept alive due to sunk cost bias. They drain focus from higher-potential projects.

7. How do I choose which ideas to pursue?

Use criteria like customer value, feasibility, timing, and strategic alignment – ideally formalised in a simple innovation brief.

8. What’s the role of leadership in innovation?

Leaders must set the ambition, ensure governance, allocate resources, and create an environment where ideas are tested, measured, and acted upon.

9. How should SMEs measure innovation success?

Track both leading and lagging metrics tied to business outcomes, not vanity indicators like ‘number of ideas.’

10. Where can I find practical tools for starting my innovation strategy?

Use the one-page innovation template, monthly forum agenda, and starter metric set outlined in this article, alongside frameworks from The Art of Scale.

 

If you’ve found these answers helpful and want to look more deeply into the subject of innovation, you can explore the full article and more resources in the previous sections. And as always, feel free to share your thoughts in the comments below or reach out to me directly for further insights.

 

Want more tailored advice on practical digital transformation, scaling or innovation? Book a free 30-minute strategy session today and get personalised advice.

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This month, we’re exploring the topic of The Innovation Advantage, with this being the second article in the series. The first one, should you wish to review it, was:

> The Innovation Advantage: How SMEs Can Beat Big Corporations

 

Stay tuned for further articles to help you take your business to the next level – or better yet, subscribe to my blog and receive the latest insights straight to your inbox. Click here to sign up or send me a note here and I’ll add you to the list.

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Related Posts

If you’d like to learn more about digital transformation and the areas we’ve covered here, the following articles and posts might be of interest:

 

Backgrounders

HBR – You Need an Innovation Strategy 

Forbes – 15 Innovation Tips Big Businesses Can Learn From Small Companies 

FastCompany – The toughest challenges facing small businesses in 2025  

#BusinessFitness #ArtOfScale #AI #BusinessAgility #BusinessGrowth #BusinessInnovation #Culture #Growth #Innovation #InnovationStrategy #Leadership #ScalingYourBusiness #QOTW

 

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