How do large companies pursue radical innovation? You know, the kind of new product that changes or creates a market. In my last blog I summarized the 6Ps, a template that I believe could help to increase the output of game-changing innovation.
The first “P” is PERSPECTIVE. Businesses tend to lose perspective when they allow the urgent to squeeze out the important, when they really need to address both. Of course this quarter’s sales targets need to be delivered, but the future of the company depends on new opportunities to drive growth; that is what is built into most stock valuations.
Few large companies today are vulnerable to “wipeout” disruption. They are either more broadly based in their product or service offering; or they compete in industries that are relatively stable, for example consumer goods. Of course there are sectors that are more volatile, like mobile phones, but I would suggest that for most large companies, the best perspective on radical innovation is how to recognize external threats that could disrupt your business; and to work on opportunities that could do the same to others.
When it comes to tools to help retain perspective, I really like the Three Horizons model. Baghai, Coley and White first outlined this in “The Alchemy of Growth” in 1999. It helps to map out a perspective of markets and technology in the self-explanatory diagram below (from Tim Kastelle’s excellent blog). Paul Hobcraft has also written well on the Three Horizon principles.
The Three Horizons process forces an assessment of technology strengths and market dynamics. It then forces a view of how much resource is allocated to each of the Three Horizons. The example below shows Google’s allocation of 70/20/10, which will differ for different companies in each category. It also forces a portfolio approach to innovation.
It also helps to retain the concept of emergent strategy in your approach to the innovation portfolio, as the days of fixed long term planning are diminishing, as outlined by Karl Moore. You can’t just write a five-year plan, lock it down and expect it to deliver. Large companies must continually revise their perspective of the role radical innovation will play in their growth.
The balance of the projects and resource applied to each element of the portfolio should be decided by the top team in the company, and be dictated by corporate strategy. Incidentally, it’s not just the resource that should follow a strategic allocation; the use of management time should also follow the Horizon split. Too often resource is applied to the opportunities on the edge, but thinking time is taken up by the short term. It should be followed through, and the temptation to reallocate Horizon Three resource to fight Horizon One fires should be resisted.
In that context it is also important to match what you say with what you do. If your strategic intent and associated communication places a high priority on radical innovation, but you don’t apply the quantum of resource with matched competency, you won’t deliver. You need a good perspective on the skills, competency and technology needed. And of course, if you don’t have it inside, find it in the outside world through Open Innovation. Kraft Foods (in their previous manifestation) estimated that 98% of IP in the food industry existed outside Kraft. Such statistics help to put the potential of Open Innovation into context.
It also doesn’t follow that radical opportunities take longer. Yes, some do if they need complicated and time-consuming technology development. However the breakthrough of digital photography was driven more from a existing consumer need and rapid acceptance of the solution; the technology had been available for some time before it started to take off in the market place.
There are many other tools to drive a broader perspective of opportunities for innovation, Three Horizons is just one. Whichever approach you take, the messages are:
- Make space in your portfolio for bets on radical innovation;
- Balance your portfolio over different timeframes;
- Balance your portfolio over different technology needs;
- Exploit the potential offered by Open Innovation;
- Balance your portfolio over different market opportunities;
- In all cases, stretch your view and take a broader perspective.
In this way, a stretched perspective can increase the chances of large companies delivering radical innovation. In the next blog I’ll discuss how the potential of radical innovation can be assessed.