By Eugene Yamnitsky
Product Management & Innovation
This topic was troubling me for quite some time, and it wasn’t until my recent visit to the New Product Innovation & Development: A Frost & Sullivan Executive MindXchange, that the solution became clear, albeit not necessarily easy: an agreed upon innovation strategy, baked into the corporate objectives.
Many organizations struggle to get the executive support for their innovation initiatives, and even then, most require cultivation of innovation spirit, and solving many other organizational challenges. Assuming that the executive commitment is there, and both the culture and the climate are favorable for innovation, let's focus on what it means to get the strategy right.
1. Describe the product portfolio
Before the innovation is considered, you have to understand the structure of the product portfolio, and identify areas that need attention. While there are many ways to represent the product portfolio, the two most helpful here would be the risk-reward diagram and the “3 Horizons” model.
A. Risk-Reward diagram
In this diagram there are 4 quadrants, representing projects in 4 categories (top-down, left to right):
- Bread & Butter: low-risk projects with low reward
- White Elephants: low probability and low payoff projects
- Pearls: high probability of success and yield high payoffs
- Oysters: long shots, but with high payoffs
B. 3 Horizons model
Horizons model helps identify which projects are focused on improving the core offerings (Horizon 1), new adjacent offerings focus on existing markets (Horizon 2), and disruptive, market defining products (Horizon 3).
2. Understand the gaps
Looking at the product portfolio, each organization will need to identify where are the gaps that need to be managed. For example, the risk-reward diagram may point out the lack of “oysters” and the abundance of “white elephants”. This should help make decisions on better resource allocation, which could free up some resources for innovation initiatives (i.e to create more “oysters”).
Looking at the 3 horizons model, you may identify lack of ideas or projects cultivated for disruptive innovation.
3. Define the innovation strategy
The next step is to figure out what type of innovation and what resources are needed to optimize the portfolio. One way to do this is to overlay the innovation strategy over the "3 Horizons" model. Some companies have the 70-20-10 rule, where 70% of the innovation time and effort goes to the core business and offerings (Horizon 1), 20% goes to Horizon 2 and 10% to Horizon 3. What does your product portfolio analysis reveal?
Each horizon requires different type of innovation management techniques, and resources, but that’s a topic for another post.
4. Bake the strategy into objectives
This is the most critical step. Now that the portfolio is described, and the gaps understood, the executive leadership agrees to manage these gaps by allocating the appropriate resources (i.e. 70/20/10). Only when this is done, will there be a clear balance between the innovation and execution.
How to bake innovation into organization's objectives highly depends on the process for annual and quarterly objectives setting in your organization. Armed with the executive buy in obtained in the previous step, and the strategy, it’s time to translate the strategy to concrete initiatives for new idea generation, incubation and acceleration.
Of course, the rubber meets the road in a day to day management of innovation initiatives, when operational leaders are asked to give up capacity in order to support the stated objectives.
I’d like to end this post with a note on friction between the innovation and the execution. Many leaders at MindXchange consider it healthy practice to have some friction between the innovation oriented leaders and the execution oriented leaders. Otherwise the organization might be focused on immediate delivery and lose in the long run, or spend all the time in the blue sky, and never deliver anything. This doesn’t mean however, that execution oriented leaders don’t need to buy in into the innovation strategy.
Eugene is an innovation catalyst and product development leader with over 15 years experience getting things done in conditions of uncertainty and fast paced change. He has a proven track record of success in early and late stage startups and large companies.