Recently I visited a company that wanted to invest in innovation. They wanted to act, yet they were hesitating. They were thinking of innovation as the creation of totally new, game changing products that radically change the marketplace. They were reluctant to invest all of their innovation budget in such high risk projects. A very reasonable conclusion.
So where should you invest?
Companies typically invest in three types of innovation project:
Core – These projects improve existing products, often for existing customers.
Adjacent – These projects expand into new business areas that are incremental or adjacent to the current offerings. They are aimed at new customers or markets close to the existing customer base.
Transformation – These projects are about breakthrough innovations and inventing new things that don’t exist yet. They create new markets and new products.
To get a balanced innovation portfolio an oranisation should invest in all these areas. This diagram summarises this approach:
What’s the right balance of investment?
Mid to large sized companies typically invest 70% of their budget in Core projects, 20% in Adjacent projects and 10% in Transformational projects.
That doesn’t mean that this is the right balance for everyone.
A small start up may be investing heavily in one technology or product that will be a breakthrough innovation and establish them as a leader in their field.
An established firm in a highly regulated industry may invest heavily in Core innovations and a smaller amount in Adjacent innovations.
The innovation investment profile you adopt will be influenced by several factors: your current product and service offerings, your strategic intent, the marketplace, customer feedback, your budget and your attitude to risk.
There are tools and processes available to help you decide the right investment profile for your organisation and where you should invest. If you’d like to know more about these tools please contact me.
Back to the company I mentioned.
They knew some of their existing services could benefit from improvement and they had received some interesting suggestions about new services that their customers would value. They decided their major investment will be in Core and Adjacent innovation projects. Additionally, they have ideas for more radical innovations and decided to invest a small amount of time into a feasibility study for one of these ideas.
In a short period they developed an interesting, balanced portfolio of projects with both short-term benefits and long-term potential.
What’s your innovation portfolio? Where have you chosen to invest?
Original image by Vectorportal.com. Used under a Creative Commons License.