Designing an innovation strategy can be as daunting as climbing a steep rock wall. If done without preparation, you will find yourself facing the wall, not knowing where to start, or how to decide where you will invest your limited resources. And even if you planned carefully upfront, you’ll find it difficult to see the top at times.
So unsurprisingly, chances are you decide to go down when you encounter a roadblock. Same thing goes for doing innovation as part of business as usual. The end of quarter is near. Channeling your remaining resources to the core business seems the safest choice. In this article, we will discuss how to get started
I have recently watched a documentary where professional rock climber Alex Honnold achieved the astonishing deed of free solo climbing a 900-meter vertical rock at Yosemite National Park. The views are humbling and breathtaking, literally.
For some, this climb was considered an act of sheer luck complemented with an unusual appetite for risk. To others, this represented an exquisite example of planning and execution capabilities. I tend to agree with the latter.
“Every mountain top is within reach if you just keep climbing.”
Barry Finlay, Kilimanjaro and Beyond
In order to reach the top, Alex Honnold carefully planned his climb. He analyzed the rock wall from top to bottom looking for the key surfaces to support himself on. He measured weather conditions such as wind and rain which could jeopardize his performance. Also, he practiced ceaselessly the climb with rope iterating his path until he found one that he was comfortable with.
I think you’re starting to understand where I am going with this analogy, right? With the right tools and systems in place, you increase the chances of success; Same goes for your corporate innovation strategy. Let’s cover some of these tools throughout this article.
Ready to reach the top?
If you are starting to plan your innovation strategy, start by defining your innovation thesis. As a climber, you can think about it as an exercise of choosing the rocky mountain you wish to climb and analyze its surroundings, what gear you might need or what level of physical preparation it might entail.
Developing a solid innovation thesis is about evaluating your business. First you want to understand where you are now and where you want to be in the future. Second, you need to understand what is going on around you (trends, market changes, emerging technologies); define which problems you want to solve and what technologies are better suited to solve them.
Some of the questions you can go through include:
The Innovation Thesis Worksheet is a great tool to help you organize your answers to these and other questions. You can download it here
Going through this process will help you decide what projects and technologies to invest in and what projects to pass on. It will also give you a simple narrative that can be shared across the organization from board-level executives to mid-management and employees so that everyone inside the company has a clear view of the high-level innovation strategy. This is especially important when you want to engage with other departments to collaborate on innovation initiatives/projects. Finally, being specific about what you want to accomplish also makes it easier to measure whether you have succeeded or failed.
The innovation thesis is composed of three parts: the statement, the antithesis, and the thesis. This exercise should fit on one A4 page - not more.
The statement should be a small paragraph explaining how you see the world and what your innovation ambitions are for the future.
Define what is outside your innovation scope:
Define what is inside your innovation scope:
In a recent interview, Ikea’s CEO Jasper Brodin spoke about their innovation efforts and how they are tied to the company’s mission.
“These are not random expressions of entrepreneurship, but it is actually, believe it or not, part of a plan. Our mission is to create a better everyday life for people, and we have three problems that we want to solve … one is regarding affordability … the second part is about bringing ourselves closer to customers … then the third part is about sustainability.”
This is a great example of an innovation thesis statement. Firstly, there’s the notion that innovation should be planned and not left to chance. Secondly, there’s a clear link between the company’s mission and the innovation strategy. Thirdly, there’s a detailed account of what the problems to solve through innovation are.
Based on this statement and public information available online about Ikea’s efforts, we can construct a semi-fictional account of their potential antithesis and thesis:
Define what is outside your innovation scope:
Define what is inside your innovation scope:
Bear in mind that the innovation thesis is indeed a thesis, a set of hypotheses that will be tested throughout your innovation initiatives. This means that it shouldn’t be immutable in time, it should iterate according to changes in the market and the learnings you collect.
Now that you have a clear view of where you want to go, it’s time to look at your set of products and services and understand if you have what you need to get there.
Staying relevant in the market is a constant balancing act between optimising the core business and searching for the next big thing. Companies too often invest the bulk of their resources on sustaining their existing business, but history has proven again and again that this is not sustainable over the long run.
In fact, companies' lifespan is decreasing faster than ever before. According to Innosight’s report, the average tenure of companies on the S&P 500 decreased from 33 years in 1964 to 24 in 2016 and is expected to hit 12 years by 2027.
Even when companies invest heavily on innovation, having a coherent strategy, a balanced portfolio and the right innovation processes in place should not be overlooked otherwise you risk losing the chance to reap the fruits of your innovation efforts. We all know the case of Xerox...
As a company, you can think about your products and services as part of an innovation portfolio. Framing it this way allows you to understand where investments are being made, but also to spot opportunities for new investments and identify where resources should be allocated.
Your innovation thesis sets a vision for your innovation efforts, and tangible criteria to choose among different ideas and business models. Creating the innovation portfolio will clarify your investment priorities over the short, medium and long term.
The first step to build your innovation portfolio is to map out your company’s innovations according to two dimensions: products (existing products vs incremental products vs new products) and markets (existing markets vs incremental markets vs new markets). The framework is called Innovation Ambition Matrix and the intersection of the two dimensions produces a map where you will see your Core, Adjacent and Transformational innovations.
Refers to small adjustments to existing products in existing markets which usually require assets that the company already possesses. Examples include process optimization, product redesign,...
In this case, you either take a current product/service and extend it to a new market or you introduce a new product into an existing market. For these innovations, you can still use current capabilities.
It covers all innovation efforts that intend to place new products in new markets. As you are standing outside your core business, it typically requires the development of new capabilities.
At this point you might be looking at the matrix and thinking? “How should I distribute my resources amongst the 3 innovation categories?” You can use the 70-20-10 rule as a rule of thumb. This means that 70% of your resources would be allocated to core innovations, 20% to adjacent innovations and 10% to transformational innovations.
Another tool worth mentioning is the The 3 Horizons Model. By plotting time against value for the business, you end up with three horizons for growth investment where H1 focuses on optimizing the core business; H2 refers to emerging businesses which are likely to produce sustainable cash flows in the near future; H3 which covers the breakthrough innovations which the ability to generate cash flows is still uncertain.
A great example of the model is Facebook’s 10-year roadmap.
With these two frameworks at hand, you are ready to map your Innovation Portfolio. Just follow these steps:
Disney is undoubtedly one of the most successful companies in the entertainment industry, an industry that has been disrupted in recent years from the likes of Netflix and Amazon, which flipped upside down the traditional content producing and distribution networks.
However, through a series of new investments and acquisitions, Disney seems to be consolidating an innovation strategy that protects and leverages on the core businesses while increasing the proximity with customers through new direct-to-consumer platforms.
To better understand what opportunities lay ahead for Disney and where innovation efforts and resources might be allocated in the future, let’s map Disney’s Innovation Portfolio.
We start by grouping Disney’s different companies/products using the Three Horizons Model. Media Networks, Parks & Resorts and Studio Entertainment are the mature profitable businesses (cash cows) that pay the bills and fuel investment into new products. The Direct-to-consumer platforms in Horizon 2 are the emerging businesses likely to sustain profits in the upcoming years in the Media Networks space. Themed parks in new markets such as China (already operating or under construction) and new themes explored in existing parks feed the growth expectations for the Parks & Resorts space while upcoming blockbuster movies like the Avatar series and Marvel superheroes sustain growth in Studio Entertainment. Finally, Disney’s corporate accelerator, running for the 6th consecutive year, invests and works closely with some of the most innovative startups in the entertainment industry.
Disney’s operating income distribution in 2019 reflects in essence this division: Media Networks ($7.48Bn), Parks & Resorts ($6.76Bn), Studio Entertainment ($2.69Bn), Direct-to-consumer ($-1.81Bn).
The next step is to move the products/companies vertically according to their innovation categories described in the Innovation Ambition Matrix. We are now in a good position to analyse gaps and imbalances in Disney’s innovation portfolio
It seems clear that Disney has a big focus on directing their innovation efforts towards their core business areas. It is likely that in the upcoming years the Adjacent innovations in H2 move upstream to join the core business and then to the left as they become profitable.
Disney’s accelerator seems to boost collaboration between novel startups and core businesses, while focusing less on moon shots. Good examples of collaborations with accelerator alumni startups include Epic Game which together with Industrial Light & Magic developed groundbreaking LED stage production technology for the Lucasfilm studio; and programmable robotics startup Sphero which developed various toys for Disney.
This year’s edition of the accelerator is focusing on themes such as AI, Augmented Reality, frontier tech, robotics, among others, which gives us kind of a sneak peek into the types of technologies and products which Disney might be looking at in the long term future and that would fill in the gaps in H3 for Transformational Innovations.
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