T HE P OWER
OF
S TRATEGY
I NNOVATION
A New Way of Linking Creativity and
Strategic Planning to Discover Great
Business Opportunities
Robert E. Johnston, Jr.
J. Douglas Bate
American Management Association
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Library of Congress Cataloging-in-Publication Data
Johnston, Robert E.
The power of strategy innovation : a new way of linking creativity and
strategic planning to discover great business opportunities/ Robert E.

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C ONTENTS
A vii
I ix
PART ONE
THE WHAT AND WHY OF STRATEGY INNOVATION 1
C 1
Strategy Meets Innovation 3
C 2
S I I M  F 13
C 3
S I I N S P 28
C 4
T D P 38
PART TWO
A GUIDE FOR IMPLEMENTATION 55
C 5
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C 6
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C 8
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C 9
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merly with Hewlett-Packard; and Garrett Bouton, Barclays Global
Investors.
Although this book will highlight the stories of dozens of compa-
nies, we would like to express a special thanks to two companies:
Moen and McNeil Consumer and Specialty Pharmaceuticals. At
Moen, CEO Dick Posey, the executive staff, and the Periscope II
team have been extremely supportive of our efforts. At McNeil, we
would like to express our appreciation to CEO Bill McComb; Bob
Carpenter, vice president of marketing; Amy Weiseman, manager
of innovation and new product processes; and the entire Edison
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A
team for their commitment to the exploration of a role for strategy
innovation in their company.
We were warned that writing a book is one of life’s challenges that
will test our character, fortitude, and sense of humor. Thanks to the
wisdom and disciplined freedom afforded us by AMACOM’sedito-
rial director, Adrienne Hickey, the orchestration of associate editor
Mike Sivilli, and the experienced professionalism of Niels Buessem,
wefoundtheprocesstobebothenjoyableandfulfilling.
Published authors who provided seasoned support and encour-
agement include Chris Zook, Bain & Company; Sidney Parnes, Cre-
ative Education Foundation; Teresa Amabile, Harvard Business
School; Stan Gryskiewicz, Center for Creative Leadership; Jonathan
Low, Cap Gemini Ernst & Young; T. George Harris, University of
California, San Diego; Lynne Lesvesque, Harvard Business School;
and Brian Mattimore, consultant.
While the coauthors have collaborated for over fifteen years, any-

using the insights gained in those explorations to identify new busi-
ness opportunities for your company. That’s it. Whereas many
management programs help you shrink your costs to grow your
bottom line, strategy innovation is aimed at growing your top line.
New business opportunities help drive new company strategies,
which drive future growth.
So, why aren’t more companies doing strategy innovation? Be-
cause they don’t have an internal structure or process to do it. Who
in your company is responsible for the future? Who is feeding your
strategic planning process with ideas that stretch your current strat-
egy and get you into new markets? How are you going about identi-
fying your next new business platform, the basis of your future
growth and success?
What we describe in this book is a phase-by-phase approach to
the process of strategy innovation, not step-by-step. We provide the
blueprint and encourage you to customize it for the specific needs
of your company and your industry. This blueprint has been evolv-
ing for more than a decade, based on our experiences in a wide
range of companies and industries. We will share with you some of
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the stories that helped to create this process of strategy innovation.
It is a process that works.
Creating a cross-functional process for strategy innovation in a
corporate setting is not as simple as it sounds. This is especially true
when the process ventures outside the current corporate strategy or
business model. Escaping your ‘‘corporate gravity’’ and then avoid-
ing your ‘‘corporate immune system’’ are two threats to the estab-

ess worked in a real company. Chapters 6 through 10 then provide
details for the implementation of the five phases of the Discovery
Process—Staging, Aligning, Exploring, Creating, and Mapping.
Stories and examples are woven throughout these chapters to add
a practical touch to the frameworks presented. Understand, how-
ever, that these stories focus primarily on the process of previous
initiatives, as we consider the content generated in them to be pro-
prietary information.
Section Three offers more in-depth discussion of the Discovery
Process and strategy innovation in a corporate setting. In Chapter
11, we answer questions and share some additional insights related
to the Discovery Process. Chapter 12 outlines the key considera-
tions in formalizing a strategy innovation process in a company,
moving the Discovery Process from an ad hoc initiative to an on-
going strategy innovation system. Finally, in the Epilogue, we chal-
lenge senior management in corporations everywhere as we share
some of our thoughts about the future of strategy innovation.
Scattered throughout this book are boxes titled ‘‘Process Tip.’’
They represent what we consider to be critical elements in the im-
plementation of the Discovery Process. They come from more than
a decade of experiences in the trenches and are things we would
emphasize if we were talking to you. We put them in boxes so you
wouldn’t miss them.
If you are curious about the history of strategy innovation in
corporations and its roots in the early work done in creativity and
brainstorming, we encourage you to read the remainder of this in-
troduction. It will provide a good context for understanding the
evolution of innovation as it makes its way to the corporate board-
room.
The Migration of Creativity to Strategy in

2
While achieving legendary success with his creativity
techniques in the advertising world, Osborn and his colleague, Sid-
ney Parnes, recognized that every human being has the potential to
be creative, if given the opportunity and the right environment.
Their work was supported by the research efforts of J.P. Guilford,
Paul Torrance, Don MacKinnon, Calvin Taylor, and others, which
clearly proved that creativity is a developable skill inherent in every-
one, not just a genius elite.
Parnes’s research demonstrated, among other things, that cre-
ativity is a skill that can be strengthened with coaching and practice.
Routinely, students in his courses were able to increase their idea-
generating capacities by 100 percent or more. Of particular impor-
tance, Osborn and Parnes proved the value of a mental model for
creativity, where ‘‘divergent thinking’’ is used to expand one’s op-
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tions, and ‘‘convergent thinking’’ enables the focus on a preferred,
innovative choice. One believer, Robert Galvin, retired CEO and
chairman of Motorola, used his imagination and inspired others
to grow Motorola one-thousand-fold during his three decades of
leadership. Galvin sagely observed, ‘‘Some think of this work of
engaging the imagination to be the work of genius. Osborn demon-
strated how it could be developed as a vocational skill.’’ If creativity
is a skill that can be developed, it becomes a tool that corporations
can use for purposes of innovation.
Applying Imagination to Inventing
In the late 1950s, George Prince and William Gordon had the task
of delivering proprietary new inventions to the clients of Arthur D.
Little, Inc., in Cambridge, Massachusetts. As part of the R&D–

cal and lateral approaches to creative thinking, lateral thinking is
the more difficult to master but the more rewarding for innovation.
DeBono has spent decades teaching corporate executives around
the world the importance of ‘‘serious creativity’’ for inspiring inno-
vative opportunities. During that time, the creativity message
gained credibility with corporate managers as a tool for innovation.
In 1970, the Center for Creative Leadership in Greensboro,
North Carolina, was founded to teach courses for individuals and
teams to hone their creative talents. Stan Gryskiewicz—founding
member, senior fellow, and vice president—organized and still
leads a group called the Association for Managers of Innovation,
which provides a forum for showcasing and networking of innova-
tion practices across corporations. Corporate managers were begin-
ning to recognize the potential for creativity in their organizations.
Applying Imagination to Strategy
According to Henry Mintzberg, former president of the Strategic
Management Society, strategic planning is an oxymoron.
4
In most
organizations it tends to neither provide a sufficient range of strate-
gic options to consider nor present an engaging road map of a com-
pelling future. This is not surprising since most strategic planning
processes are numbers-oriented, lacking a creativity component. As
a result, strategic planning in most companies is a process that
merely extends the previous strategy into the future. Even when
senior executives invite ‘‘out of the box’’ thinking, most managers
do not know how to go about exploring beyond the existing strate-
gic framework.
We had the opportunity, as a founding principal and associate at
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driven. Others were motivated by ambitious goals that extended
beyond the reach of current capabilities. Still others were motivated
by a severe competitive threat, which created an appetite for strat-
egy innovation where none had existed before.
In every case, the organization was challenged by its situation to
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stretch beyond its self-limiting boundaries of how it viewed itself
and the world. A shift to a new organizational self-image, a new
industry perspective, or a new worldview was needed. The organi-
zation would then have to align on that new perspective, so it had
to be a result of a credible, quality process.
Eli Lilly: An Early Strategy Innovator
In the mid-1980s, Eli Lilly and Company, a large and respected
pharmaceutical manufacturer, speculated there could be a dramatic
shift in drug discovery and development within infectious disease,
home of its largest revenue stream. Most of Lilly’s product portfolio
for infectious disease was targeted to bacterial disease. Senior man-
agement wanted to explore the emerging trends in infectious dis-
eases to determine if more attractive opportunities might exist in
developing new products targeting viral and/or fungal diseases.
We were retained to act as ‘‘process architects’’ and ‘‘discovery
guides’’ for the Infectious Disease Task Force, a half-dozen cross-
functional teams assembled to create and develop new strategic op-
tions for Lilly in infectious disease. After much research of the avail-
able literature and the hosting of several panels of industry experts
(called thought leader panels) sharing their views of the emerging
future, the Lilly teams gained a new understanding of the opportu-
nities for the future of pharmaceuticals. From this foresight, these

are those who can create and keep creating.
5
Creativity from the Mailroom to the
Boardroom
Through this book we hope to extend this fifty-year migration of
creativity in corporations. What started as a recognized, teachable
skill in an advertising agency grew to become a tool for invention,
and then a process for innovation throughout the company. This
book will open the door for creativity in the boardroom, success-
fully marrying the processes of innovation and corporate strategic
planning.
Although strategy and creativity may be strange bedfellows, the
time is right for bringing them together in the corporate board-
room. It is not a matter of replacing your analytical, numbers-based
strategic planning process with a less predictable, sometimes-seren-
dipitous creative approach to strategy. The strategy innovation
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process outlined in this book will show how the two disciplines can
be merged, with strategy innovation feeding the strategic planning
process. The corporate need for innovation will demand this mar-
riage, from a courtship that began long ago.
Endnotes
1. Gary Hamel, ‘‘Strategy Innovation and the Quest for Value,’’ Sloan
Management Review, Winter 1998.
2. Alex F. Osborn, Applied Imagination, 3rd edition (New York: Scribners,
1963).
3. Edward DeBono, Lateral Thinking for Management (New York: AMA-
COM, 1972).

lucky.
Then there are companies that have scouted out the road ahead
and know their refueling options. With their eyes watching the
road, the map, and the fuel gauge, they fill up the tank before it gets
too low. Even older models, with the proper tune-up and constant
refueling, can remain cruising at the speed limit for decades.
Your company needs strategy innovation initiatives to under-
stand the road ahead and know your options for keeping the prod-
uct tank full and the financial engine running smoothly.
3
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T W  W  S I
What is strategy innovation?
Strategy innovation is shifting a corporation’s business strategy in
order to create new value for both the customer and the corporation.
In a dynamic marketplace, every business runs the risk that its
current business model will become obsolete. As long as there is
customer value to be delivered, there will be companies interested
in delivering it. New companies will create innovative, more effi-
cient business models in order to compete in profitable industries.
Consider the case of Wal-Mart. Starting as a discount retailer to the
underserved population of rural areas, it needed to develop a new,
more efficient retailing business model in order to survive in that
segment of the retailing market. Using sophisticated technology and
a streamlined distribution system, Sam Walton created a new busi-
ness strategy in the retail industry that created value for both his
rural customers and for his company. The superiority of their inno-
vative business model ultimately led to Wal-Mart’s domination of
that entire industry. The strongest survive.

managers used panels of experts in this new technology to explore
the emergence of digital photography and identify the potential
new business opportunities of the future marketplace. From this
work, Kodak understood the ramifications of digital photography
on the industry and made important changes in their corporate
strategy. R&D spending was immediately shifted from a focus on
new silver halide projects to an interim, ‘‘hybrid’’ strategy, balanc-
ing the needs of the still-strong silver halide business with the grow-
ing potential of digital photography.
In the decade that followed, Kodak became a force in the world
of digital photography, including the development of Picture CDs,
Picture Maker kiosks, the purchase of their Japanese partner Chi-
non to manufacture digital cameras, the purchase of online photo-
finisher Ofoto, and a joint venture with America Online called
You’ve Got Pictures. As this book is being written, Kodak is transi-
tioning with the market to digital photography, rather than being
left in its wake. It shifted its business strategy to create new value
for both Kodak and its customers.
Polaroid, on the other hand, ignored the early signs of digital
photography and decided to stick with and protect their existing
corporate strategy in instant photography. They did not understand
how to create value in this emerging marketplace, preferring to
compete using their old strategy, crafted in a very different era. On
October 12, 2001, Polaroid filed for bankruptcy protection.
Companies that are attuned to the changes taking place in the
market and see them as potential business opportunities are prac-
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ticing strategy innovation. Companies that are eager to create new

markets. Besides having a product to sell, companies have to make
that product and then get it into the hands of customers (and meet
their customers’ needs). To do this, companies create specific func-
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