If you’re already investing in innovation to grow your core business, why is disruptive or transformational innovation important? The answer is simple: the more successful your core business today, the more you need to innovate beyond its boundaries to future-proof it to the inherent changes in the market and to grow robustly. As one customer recently described it: “Our greatest fear is not our direct competitors; it’s the companies we don’t know about. Someone somewhere will come out with a new business model or technology that kills our company.” You need to get there first. If nothing else, the disruption and uncertainty caused by COVID illustrates the importance of creating resilient businesses through revenue diversification.
According to a well-accepted principle, the most successful companies allocate resources between core innovation, adjacent innovation and transformational innovation in a 70/20/10 ratio (article). Whatever the specific number, the message is clear, if you’re not investing in those diversified, future opportunities, you can’t reap the rewards. And the good news – assuming you’re investing effectively those companies investing in all three types of innovation generated returns in the inverse ratio – i.e. 10% from the core, 20% from adjacent and a whopping 70% from transformation innovation!
But I’ve noticed recently than many apparently effective corporate innovation teams face a paradox. By working on those important core projects that are already factored into the launch pipeline… they can’t afford to fail. If they can’t afford to fail, they find they can’t afford to (really) innovate. Has this happened to you?
You set out with good aspirations, yet under pressure to feed the pipeline and improve efficiency this drives out projects with risk... effectively removing breakthrough and disruptive innovation. The upstream innovation becomes coupled to ‘downstream’ product development. And so while they are an important part of the organisation’s product development efforts – are they really an INNOVATION team?
Corporate leaders I speak to confirm just how challenging they find innovating effectively on the core business while simultaneously exploring disruptive innovation opportunities beyond their current pipeline. In the same team and the same resources, the urgent always takes priority from the longer-term “important”. And the increasing complexity of technology and the accelerating pace of the market makes this a growing challenge for organisations.
But it is very hard to identify and deliver those disruptive innovations through the corporate immune system without creating a team that is focused on transformation as opposed to growing (and protecting) the core business. In my own work I’ve found the mindsets, capabilities and approaches required to succeed in transformational innovation are just very different to those required for core product development.
So rather than trying to find a way to add transformational innovation to the long list of to-dos that core innovation teams have, I’d recommend instead creating an independent breakthrough team which is ‘protected’ from the core. By allowing them to be autonomously managed and most importantly decoupled from the companies’ primary development pipelines, these independent units can be more agile and able to explore new spaces, technologies and business models – to fail quickly – and ultimately monetize opportunities beyond today’s core business. I heard one executive capture it nicely, “if you’re not dedicated to pursuing disruptive innovation, then who in your company is? And if there isn’t a specific place for disruption to happen then either it lives in the entire organisation (scary…) or (worse) it lives nowhere!”