How established companies can innovate strategically

In an environment marked by frequent disruption and growing competitiveness, the ability to reinvent the business model has become an urgent necessity for many companies. However, as Joaquín Cava, Lecturer in the Department of General Management and Strategy at Esade, warns, most established organizations struggle to carry out real strategic innovation. 

Although many companies know how to gradually improve their products or processes, very few succeed in deeply redesigning the way they create and capture value. What kind of obstacles do they face when trying to innovate? And what options do they have to structure the organization in a way that encourages innovation? Professor Cava addressed these questions during the Esade Live Experience, an open house event where partners, prospective students, and alumni were invited to explore Esade’s new campus in Madrid. 

Innovation is more than improvement

Every business model is built around three main components. The first is the value proposition, which answers what customer needs are being met, with what product, and at what price. The second is the delivery architecture, which includes the human, operational, technological, and commercial resources needed to realize that value proposition. The third is the profitability equation, which determines how revenues, costs, and investments are managed to ensure the business’s viability. 

Strategic innovation is not about doing “more of the same,” but about imagining completely different models

To strategically reinvent a company means to substantially modify at least one of these three components in order to meet the same needs in a different way. 

This simple framework helps distinguish true innovation from mere incremental improvements. Professor Cava uses two illustrative examples: while launching a razor with one, two, or even fifteen additional blades is not an example of strategic innovation, the development of the Segway—despite its disastrous commercial failure—was, as it attempted to radically rethink personal mobility. Strategic innovation is not about doing “more of the same,” but about imagining completely different models. 

The problem for large companies is that they are very good at improving what they already do, but they struggle to find innovative solutions that break from their own logic. Keeping the core business running while exploring new avenues often generates internal tensions that are hard to manage. 

Why is innovation so difficult?

In a survey he conducted himself, Professor Cava asked innovation managers at 65 medium and large companies what kinds of challenges and limitations they faced. The first notable finding was that nearly 80% admitted to having serious difficulties with strategic innovation. 

The reasons for this are varied. In many organizations, there are no incentives to experiment, and the corporate culture may even be designed to punish failure and stifle entrepreneurial spirit. The opposite can also occur: there may be strong willingness, but a lack of qualified talent, leading to empty rhetoric rather than a rigorous understanding of innovation. Another limiting factor is the fear that, like the folktale of the milkmaid and her pail, fantasizing about uncertain returns from strategic innovation could end up destroying the current business model. 

However, two key aspects stand out in the survey. One is the constant pressure to deliver short-term results: the need to show strong quarterly performance to shareholders leaves little room for innovation. The other is the lack of alignment in capital allocation mechanisms. How can one justify investing in innovation using traditional profitability metrics? Without a clear business case and concrete numbers, many committees reject initiatives that, although strategic, cannot predict their return with precision. 

How is innovation organized within a company?

In response to this challenge, Joaquín Cava proposes a conceptual framework to understand how companies organize themselves when they decide to take strategic innovation seriously. His approach is based on two axes: where innovation is located (inside or outside the organization) and the level of control exercised over it by the core business. This leads to four types of structures. 

Some companies choose high-control internal solutions, such as creating dedicated innovation departments or cross-functional teams tasked with exploring new ideas. Others prefer low-control internal approaches, in which the entire organization shares responsibility for innovation in an ambidextrous way. This can take the form of independent units reporting directly to the executive committee or structures in which all employees are encouraged to devote part of their time to generating new proposals. 

On the opposite end are external strategies. When combined with high control, these include joint ventures, acquisitions, or close collaborations with specialized consultancies. In such cases, the company maintains tight oversight of the innovation process, even though it unfolds outside its own boundaries. Finally, there are external models with low control, in which companies invest in startups or independent projects with full autonomy—essentially a kind of innovation conglomerate. 

According to Cava’s findings, in practice, most companies opt for internal or hybrid models, and very few rely exclusively on external initiatives. Beyond that, successful cases tend to show interesting patterns. 

The key to success

What sets apart companies that manage to innovate strategically from those that fail? The most common trait is their perception of risk—they tend to have a heightened awareness of the potential for disruption in their sector. They don’t deceive themselves into thinking everything is fine: they see the threats and take action. “A real motivator to step up is realizing that you're actually in trouble,” Cava sums up. 

In addition, their organizational structures don’t stifle innovation. They have attracted the right talent, offer appropriate incentives, and most importantly, make innovation a genuine priority on the executive team’s agenda. Senior leadership must be deeply committed to innovation for projects to stand a real chance of success. 

When it comes to organizational models, those that combine an external orientation with a high degree of control stand out, as do internal low-control approaches that allow employees to freely question the fundamentals of the business. In contrast, more rigid structures, with functional teams confined within the organization, are associated with lower innovation success. 

In short, innovation doesn’t have to be the sole domain of startups. Even though they face greater challenges and may be less agile, established companies can adopt viable strategies to move from constant incremental improvement to true strategic innovation—and thus avoid losing their market position to new players. Achieving this requires courage, vision, and effective management of the internal factors that tend to block innovation.