Innovation Without Luck: A Framework for Growth

The term “innovation” is often associated with geniuses turning startups into gold mines, but the reality is that most companies struggle to identify the right opportunities. Every company aspires to be as innovative as these startups, but many invest in or buy them without a clear understanding of what they’ll yield. According to a series of three surveys conducted over six years, while 80% of executives know that their companies’ success depends on introducing new products and services, more than half agreed that their companies dedicate insufficient resources to support innovation.

The Simple Categories of Innovation

Innovation is often made unnecessarily complicated, but it can be boiled down to six simple categories with corresponding examples from Apple:

• New processes. Sell the same stuff at higher margins: Cut production and delivery costs, automate for efficiencies, cut fat in the supply chain or manufacturing, and utilize robots.
• New experiences. Sell more of the same stuff to the same people: Increase retention and share by powerfully connecting with customers. An example is the Apple Store experience, which many would argue is as compelling as the company’s products.
• New features. Sell enhanced stuff to the same people: Add improvements that drive incremental purchases. An example of this is every new phone Apple releases, with better cameras and so on.
• New customers. Sell more of the same stuff to new people: Introduce the product to new markets with needs similar to your core, or to markets where it might address a different need. For Apple, this goes back to reaching the mainstream rather than the design community.
• New offerings. Make new stuff to sell: Develop a new product — not just enhancements. Find new needs to solve within existing markets, or invest in a new category. Think HomePod or the iPod.
• New models. Sell stuff in a new way: Reimagine how to go to market by creating new revenue streams, channels, and ways of creating value. This can be as simple as moving to a subscription model, or as transformative as Apple’s creating iTunes.

An Intentional Approach to Innovation

Deciding which ways to grow needs to be intentional — not driven by luck. Innovation budgets are finite, so allocations of your scarce resources should reduce risk and focus on the best bets. A balanced approach is key, just like a retirement fund needs to be balanced among high and low risks and rewards.

The following innovation budget allocation model shows the relationship among these six simple ways to grow, in the context of the four quadrants of the portfolio (evolutionary, differentiation, fast fail, and revolutionary), each of which gets a percentage allocation of the innovation budget:

• New processes fall outside the innovation portfolio (no budget allocation).
• New experiences and new features are in the evolutionary quadrant (about 40%–60% of the budget).
• New customers are in the fast fail quadrant (about 10%–20% of the budget).
• New offerings are in the differentiation quadrant (about 10%–20% of the budget).
• The combination of both new customers and new offerings are in the revolutionary quadrant (about 5%–10% of the budget).
• New models can fall anywhere in the portfolio.

The Easiest Goal in Innovation

The easiest goal in the innovation pie is to maintain relevance to your core market through enhancements — with new features for your current offerings or the experiences that deliver them. It’s easy because it focuses on a market you already know and on products you already know how to deliver.

Focused Bets on Revolution

A smaller portion (5%–10%) for focused bets on revolutionary, high-risk opportunities with new offerings to new customers. In this quadrant, you focus on a big idea, using agile approaches to break it apart to see which elements drive value through continuous assessments of desirability, since you don’t know for sure what the market values (even the idea itself). If you continue to clear hurdles, you stand a chance to launch a game-changer that fills an unmet need.

Conclusion

FAQs

Q: Why is innovation often made unnecessarily complicated?

A: Innovation is often overcomplicated because companies try to tackle too many ideas at once, without focusing on the most promising opportunities.

Q: What is the easiest goal in innovation?

A: The easiest goal in innovation is to maintain relevance to your core market through enhancements — with new features for your current offerings or the experiences that deliver them.

Q: What is the key to success in innovation?

A: The key to success in innovation is to focus on the most promising opportunities, allocating resources intentionally and balancing risk and reward.