Balancing the innovation portfolio: What is the right mix of innovation within a business?
Of course the answer is ‘it depends’ and there is unfortunately no one size fits all solution. However, there are some really useful rules of thumb that will help to guide you.
In defining mix you need to first of all define the different types of innovation and ideas that you have. Our take is borrowed from Igor Ansoff’s classic management model on where and how to allocate funds to growth within a business, and was featured in Harvard Business Review (May 2012) also.
This captures much of what we have seen and share back to our clients:
In this definition there are three hierarchical levels of innovation within the corporate innovation ecosystem. This is probably the minimum level of complexity you can reduce your innovation portfolio down to;
1) Core innovation: In most businesses the most effort (c.70%) in terms of time and resource will be given over to ideas and innovation within this category. These are typically more incremental improvements to existing products or services to optimise the delivery, return and experience for the existing customers. Epson did this well when they reworked their printer cartridges into new packaging distinguished by using animals rather than complex product codes for each product, making it easier for customers to remember which product they required and also solved a side issue of cartridge theft in the process!
2) Adjacent innovation: The level of complexity and risk involved changes as you move out from the core. Adjacent innovation is not possible for all companies, it can be extremely complex and failure rates, especially when looking to take existing products to new markets are fairly high. The most common strategy here is to seek incremental ‘value-add’ products or services to layer on to existing core propositions. In a traditional business c.20% of the overall innovation portfolio should be given over to this type of activity. Examples include Financial Services companies looking to exploit new markets through mobile including new payment services e.g. Barclays PingIt
3) Transformational: Not all innovation has to be new, but at this level businesses are looking for new products/new markets, step change, big ticket items. The highest risk strategy, transformational innovation can be a huge distraction for many businesses and for some can be even more risky and costly. Early stage businesses, highly innovative businesses will give up to 20% of their portfolio to such activities. Typically however, 10% of the overall portfolio at most would be focused on this type of project given the overall risk and cost to the organisation (we will look more later at the other parts of the ecosystem required for transformational innovation).
Looking at your business do you know:
- What is your innovation mix strategy?
- What is your current innovation mix?
In a future post we will look at metrics and tracking across the innovation portfolio. Rarely can people accurately (or easily) answer these questions, despite the obvious importance to any business. An innovation audit is often the obvious starting point, seeking to understand the graph of innovation within a business.