The Innovation Value Chain

“We don’t want to push our ideas on to customers, we simply want to make what they want” – Laura Ashley

In an earlier post I offered the following, simple innovation value chain based on the work of Hansen and Birkinshaw (Hansen & Birkinshaw, 2007).

Ideation - value Black

But as we think about innovation, it’s important to understand where that idea actually comes from. As Laura Ashley pointed out in the quote above, it’s no good to come up with your own idea, good as it may be, and try and push it onto your customers. Laura Ashley’s vision was that her stores would provide what her customers wanted, not what she wanted. I’m going to argue that in the majority of cases it’s more about what customers need than what they want, but that does not detract from the customer focus implied in the quote.

An important note about needs though – meeting needs is not necessarily the same as solving problems and certainly not the same as solving known problems. Because addressing them creates value, needs can just as easily represent opportunities for improvement that others may not have noticed, or realised, yet. And, when creating entirely new technologies, innovation can require anticipating future needs and having the solution ready to provide value when the future catches up with us. This is a lot more difficult to do, and can be a lot more challenging to fund, but it’s still innovation and it still meets needs.

A lot of people have asked me which comes first – the idea or the need?

Well, it’s important that the idea arises for the right reasons. According to Peter Drucker “the most common source of mistakes in management decisions is the emphasis on finding the right answer rather than the right question” (Drucker, 2007). Drucker’s “right question”, the question that drives the idea, is the child of two complementary concepts.

Firstly, the idea has to meet a genuine need of the customer or possibly of another stakeholder and secondly, the idea has to match the capabilities of the organisation – that is, the organisation must be able to deliver it. The magic happens when there is sufficient overlap between an identified need (which will create value) and the organisational capability to deliver, and this overlap generates an idea that can truly kick off the innovation value chain.

That’s not quite enough, though. It’s also important to be sufficiently observant and responsive to continue to re-assess needs and capabilities in the light of what emerges as you implement your strategy. Thus, in the image below I have added to Hansen and Birkinshaw’s model, introducing needs and capabilities as inputs to the idea and adding continual feedback loops from value creation. The feedback loops are really important. Your customer or stakeholder needs must be reviewed throughout the process, to avoid creating the next Ford Edsel. You must also continually assess your plans against your capabilities, both technical capabilities and organisational capabilities and skills, to make sure that the plans are grounded and that you are not taking on something you cannot achieve.

Value chain Expanded to the left

This image gives you the basis of a strategy that embraces innovation.

Let me know in the comments below or contact me if you want a deeper discussion about how needs and capabilities can magically combine to create value.

Key Learnings

  1. Ideas must be driven by customer and stakeholder needs, and organisational capabilities, in order to create value.
  2. A successful strategy that embraces innovation will include continual and frequent reassessment of those needs and capabilities.

References and Further Reading

Clegg, J. (2020, October 6). Innovation – What’s That?

Drucker, P. (2007). The Practice of Management. Abingdon: Routledge.

Hansen, M., & Birkinshaw, J. (2007). The Innovation Value Chain. Harvard Business Review, June.

© 2020-2021 J M Clegg Ltd

Image © By Iaroslav Neliubov –


2 thoughts on “The Innovation Value Chain”

    1. Thanks J-P. Whether he said it or not, it’s a great quote, and a good illustration of why it’s so important to explore what needs will drive innovation, and not just what people say they want. Often it turns out that they don’t know what they really need!

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