I have just finished reading a very good article in the Harvard Business Review (May 2012) by Bansi Nagji and Geoff Tuff entitled – Managing your innovation portfolio
They argue that leaders get the best returns on innovation when they adopt a portfolio approach.
This is similar to investing where financial advisors suggest that you place money in a broad range of instruments so as to manage your risk and return.
In this case they suggest investing 70% of innovation efforts in the core (i.e. use existing products and assets to serve existing markets and customers).
20% in what they call the Adjacent innovation projects – this is where you expand from existing business into new to the company (i.e. add incremental products and assets and enter adjacent markets and serve adjacent customers e.g. Google Maps).
10% in Transformational innovation projects — developing breakthroughs and inventing things for markets that don’t yet exist (i.e. develop new products and assets and create new markets and target new customer needs e.g. ipad).
This is a wonderfully simple yet powerful formula to ensure that effort is spread across a portfolio of opportunities and risks.
Yet here is the rub.
In terms of innovation returns — the core generates 10%, the adjacent 20% and the transformational 70%.
Their terminology is similar to a tool I developed some years ago which I called the Power of 3.
By this I mean that when creating ideas or solutions it is very effective practice to develop some business-as-usual ideas (i.e. the core), Different (i.e. adjacent) and Radical (i.e. transformational).
The business-as-usual, different and radical framework ensures that not all your ‘innovation eggs are placed in the one basket’.
Sometimes for example it is better to go for the low risk, low return options that can be delivered quickly and easily rather than the high risk, high reward ideas.
However it is my experience that most companies are more comfortable with the first two types of innovation (i.e. core and adjacent) and really struggle with the transformational ones.
Because this type of innovation require leaps of imagination, fully engaged leadership, sometimes large investments, new metrics, approval processes and a culture that is receptive to big, new ideas, risk and occasional failure.
This however is the real stuff of innovation and growth and will ensure your brand or business is around in 100 years or so.
The key question:
How much of your innovation dollars are invested in the usual, different or radical arena?
Are you confident this is the right mix for the future?
If I can help then give me a call.