How To Quickly Tell If You Have An Innovation Problem

At a recent speaking engagement, I was asked if there was a quick way to tell if an organization has an innovation problem.  The organization in question has a long and proud innovation track record … and has been meeting its revenue and cost objectives. On the surface, all seemed to be in order … but that was not the case.

As I pondered the question my brain quickly rifled through various best practices for analyzing product lines and portfolios including the Boston Consulting Group Growth Share Matrix first published in 1970 by BCG founder Bruce Henderson.  The matrix is based on the clever use of question marks, cash cows, dogs and stars as way to stratify a given portfolio … and to help allocate resources based on two factors (company competitiveness and market attractiveness).  While over 40, the model and methodology remain viable and are still widely used.

There are other approaches such as the Deloitte Consulting Growth Framework … but my preference is the McKinsey 3 Horizons of Growth.

The McKinsey model has also stood the test of time and is more intuitive (at least to me). It addresses a fuller spectrum of portfolio analysis issues and breaks down as follows:

  • Horizon 1 – Extend and defend core businesses.
  • Horizon 2 – Build emerging businesses.
  • Horizon 3 – Create viable options.

It is based on the traditional “S” curve adoption and growth principle but asserts that at a key point on the adoption curve, new innovation (and investment) is needed to enable future horizons of growth as indicated above.  Each horizon ensures future waves of new revenue growth and continued innovation.  In all, 3 horizons are needed.  Each horizon requires a different approach, people, skills and management method.  As you might suspect, each horizon level is also increasingly intrapreneurial. Most importantly, you need to manage all three horizons concurrently … even though based on different principles:

  • Horizon 1 – This is typically a fully capable or mature offering / platform that is being managed by “business maintainers” using traditional performance, operational and profit metrics such as return on invested capital (ROIC).
  • Horizon 2 – This is typically new capabilities that are being built-out or acquired in emerging business scenarios by “business builders” based on growth aspirations using metrics such as net present value (NPV).  This stage is well past the experimentation phase, has early adopters and expected to show scalable grow in the near future … followed by profit soon thereafter.  The Crossing The Chasm model by Geoffrey Moore comes to mind for me.
  • Horizon 3 – This is the experimentation phase where requirements may be unclear.  It needs to be led by “evangelists or visionaries” and governed by validation or iteration metrics such as number of interviews, feedback sessions, number of iterations or other early stage progress metrics. It is typified by prototypes, market validation, agile development and directional pivots.  The Lean Startup concept by Eric Ries comes to mind.

Upon some investigation, the balance of investment (for the company in question) was far too heavy on near-term (or proven) revenue performance offerings (Horizon 1) and not enough on longer-term growth options (Horizons 2 and 3).  In light of conservative spending by most companies coming out of the recession, this was not an unexpected finding.  The tendency in business for the past few years has been to focus on short-term initiatives … sometimes at the expense of ensuring future growth options.

A simple mapping of your own portfolio of offerings to the three horizons may be just as revealing as it was in this case.

Most organizations should strive for roughly 70% investment on Horizon 1 offerings, 20% investment on Horizon 2 and potentially as much as 10% on Horizon 3 offerings.  These percentages may vary from company to company … and industry to industry … but represent a reasonable breakdown for any organization to evaluate itself.

When was the last time you evaluated your offerings using some method like this? If you don’t know the answer, or if it has been longer then 12 months, then invest the time do this.  Your future could literally depend on it.

I feel good that I was able to steer them in the right direction using such a proven method to manage innovation.  My innovation initiatives are progressing.  The Intrapreneurship: Tackling The Challenges of Bringing New Innovation to Market AIPMM webinar replay is available in case you missed the live event and The First Annual Intrapreneurship Benchmark Survey on Commercializing Innovation survey remains open through June 30, 2014.  I plan to compile, analyze and publish the survey findings in Q3.

As always, leave me your thoughts and opinions here.