I was reading a great article in Harvard Business Review about managing your innovation portfolio. It made me appreciate that for most organizations, it is difficult to strike the right balance of core, adjacent and transformational innovation. As a new product development manager, I enjoy working on the real breakthrough ideas, but those are few and far between. There is only so much funding available for capital projects and only so much risk an organization can undertake. So what kind of new product innovation will your organization choose to focus on? There are three types:
Core Innovation –They are the successful products you have already launched to market. If they have been successful for a long time, they are often referred to as “cash cows”; they bring in the revenue that fund new initiatives. If you work for a low-risk organization, the CEO probably wants you focus on different ways to milk that cow (small incremental improvements) rather that rock the boat working on brand new initiatives. It can be reassuring to be the Product Manager for a cash cow because you know your market, you know what the customers want and you just bring it to them. The trouble is that one day, that cow will dry up and the organization too if it has not invested in adjacent and transformational innovations.
Adjacent Innovation – I have an example from my software days. I worked for a company that built Unix GUI tools. We sold them for thousands of dollars per license and our market loved them as we saved developers many hours of coding work – plus our GUI’s made our client’s software look good. However, the market changed as Windows and Java became popular and the market for expensive Unix environments declined. So we decided to develop our tools for Windows and Java but making that leap was not easy; we had to hire new talent and understand new markets (price points, features/functionality, platform requirements, competitors etc…).
Transformational Innovation- This is when you do something completely different from what you have done before. Building the capabilities for game-changing products typically requires a lot of funding and is very risky. The difficult part is that the customer is often not ready and/or has no knowledge of your offering so you have to spend a lot of time and money educating the market. This is why only 10% of all real game-changing innovation actually succeeds in the market place. For mature company, only 1% of transformational innovation succeeds. In my experience there are three key success factors for transformational innovation: (1) a strong Executive sponsor who can communication a clear vision, (2) funding (yes, let’s state this one more time), and (3) good metrics to make decisions – without metrics bad ideas are too slow to get killed.
As a product development manager responsible for new product ideas, I spend a lot of time educating and encouraging everyone from the C-Suite to the ground floor to look for and share ideas. I review a lot of ideas with my New Product Innovation Committee. It’s good to look for the really good ideas but we also need to remember that we have to manage our total innovation portfolio which means core improvements and adjacent innovations as well.