Many times I have asked myself what the best-in-class innovation portfolio would look like. How should you balance the different innovation ambition levels such as incremental innovations with transformational (breaking news) innovations? Are there any numbers you can benchmark against and what ratio will have the most impact on your financial results and share price? What areas of management will boost the different levels of ambition?
Influenced by an article in Harvard Business Review, May 2012 I will try to shed some light on these questions through a trilogy of posts. You are reading the first one now; the second post will come on Monday, June 11 and the third one on Thursday, June 14.
Companies pursue innovation at three levels of ambition;
- Enhancements to core offerings
- Pursuit of adjacent opportunities
- Ventures into transformational territory
In the core innovation ambition square, the focus is on optimizing existing products and services for existing customers. They use existing products and assets to service existing markets and customers with incremental improvements to products and services.
The opposite is transformational initiatives, which develop breakthrough products and services for markets that don’t yet exist. These innovations make the headlines and are considered game-changing ideas.
In between are the adjacent innovations, where companies leverage their well-known products and services into new markets. These innovations allow a company to utilize existing capabilities by offering them to new users.
Logically, if you are in charge of, or involved in, product development within your company, you should now ask yourself how much you spend in each innovation ambition area. What is your “as-is” and “as- wished” ratio? Is there a best-in-class ratio you can benchmark against?
In a study of companies in three sectors—industrial, technology and consumer goods—analysis revealed a pattern which showed that high-performing companies allocated on average;
- 70% to core
- 20% to adjacent and
- 10% to transformational innovations
Successful firms do not rely on a collection of ad hoc efforts by a few individuals within a few product or business areas, but instead manage for total innovation.
Naturally, different companies will have different ambitions and allocations, depending on industry, competitive position and their stage of development. I will not go deeper into this, but conclude with one very important takeaway;
Companies typically struggle the most with transformational innovations because they force the organization to do things differently as they need different people, different motivational factors and different support systems.
To get the right balance in your innovation portfolio, there are 5 areas of management that serve the three levels of innovation ambition. I will share these with you in the next post, coming on Monday June 11.