Tuesday, April 24, 2018

Three Horizons of Innovation

Innovation needs to become a “living process," with frequent evaluations, listening, and revision.

There is a rapid shift in the digital paradigm. We are more creative and innovative than ever. There are all sorts of innovation and different flavors of digital innovation. Innovation is risky and most companies want to minimize risk versus taking intelligent risks. Most companies would never take a huge leap even with the enticement of a huge payback. The innovative appetite and aptitude decide the future of the business. Here are three innovation horizon.

Incremental Innovation: Innovation is a nonlinear process involving non-stable processes. Innovation needs to become a “living process," with frequent evaluations, listening, and revision. Innovation like most aspects of learning is best started with small frequent improvements within any organization. Generally, incremental innovation brings short-term value additions or competitive advantage but takes less risk. Incremental innovation and continuous innovation are overlapping. if your stakeholders are internal process owners and your output stakeholders are the same, the type of innovation you have is Continuous Innovation. Innovation is a management process, thus, organizations have to keep tuning the process to make idea flows, improve the success rate of idea implementation. Incremental innovation is important to build the culture of innovation, build the business capacity for innovation, and create the “atmosphere” with innovation as a new normal.

Evolutionary or sustainable innovation: It is about how to manage incremental innovation in a structural way to make continuous delivery. This requires an effective 'innovation system' that is capable of managing and sustaining both widespread incremental innovation and ways of working as well as the rarer 'step-change' innovation in products/services/process, working methodology, business model, market positioning, as well as “soft management innovations,” such as leadership, communication, culture, etc., innovation. If you take knowledge from one context and bring it over into a new context you have knowledge or technology transfer innovation. Without innovation, without collective human progress. Hence, innovation managers should create a sense of urgency to stretch up, have a bigger innovation appetite, and take the time to ride the innovation curve. That also includes the effort to scale innovation and amplify innovation impact. There is a delicate balance of breaking down the overly rigid structure to experiment and tuning efficient processes for managing innovation. The broader the scope, scale, and impact of the innovation, the more one leans towards calling such innovation evolutionary and sustainable.

Radical or breakthrough Innovation: Breakthrough innovation is disruptive, with high return and high risks. Breakthrough Innovation is disruptive and will change your organization in many fields. You need new technologies, new processes, new customers, new knowledge may be a new business model. All that makes them very risky but on the other hand, you will get very great chances and opportunities for new product lines, platforms, etc. The differentiation between incremental and breakthrough innovation relates to the degree to which a particular innovation changes the competitive landscape, potentially making entire industries obsolete, as digital photography did to the film industry. Radical/Breakthroughs/Transformational Innovations are not something everyone can accomplish. You have to systematically develop the capability to execute it successfully, and that is something you do not accomplish overnight.

The gap between incremental and radical is huge both in terms of outcomes if successful and on how to approach it: Because most of the radical innovations need a lot of time to launch into the market. Therefore, most of the organizational culture, especially in large companies are not inclined to radical innovation. Large companies are much better at incremental innovation than at radical innovation. They have lots of potentials and also the better chances for the success of the evolutionary innovation. The realities of corporate life don't allow companies to spend all their resources on radical innovation, because of the high percentage of risks to fail. You cannot “disrupt” without incremental innovation being part of the process. However, on the other side, the challenge of leading and managing innovation is an overly conservative approach itself, focusing on individual line extension renovation rather than developing a broader portfolio. It perhaps limits the organizational capability to only focus on small incremental innovation and fail to result in significant step changes and revenue opportunities by evolutionary innovation and breakthrough innovation.

How to manage a balanced innovation portfolio depends on the nature and size of the business Generally speaking. companies should have a balanced portfolio of innovation management composed of ~70% of "incremental" innovations, ~20% of "adjacent" and ~10% of "radical/breakthrough innovation" Obviously, the precise ratio is dependent on the age/size of the company.  The "three-horizon innovation strategy" is the name for this approach.


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