3 Types of Innovation that will Accelerate Growth for your Business
“Why should we innovate?”
It’s an unspoken question , but is one that we know companies are debating. Intuitively, business leaders know that snubbing innovation results in simply resting on their laurels. As world-renowned business educator and coach Dr. Marshall Goldsmith has said, “What got you here won’t get you there.” So why does moving away from complacency remain a challenge?
Many leaders are deeply proud of their company’s legacy, often leaning too heavily on the past instead of looking to the future. But just because a company has been around for 100 years doesn’t guarantee it will live to see 101. Consider this: nearly 9 out of 10 Fortune 500 companies that existed 25 years ago, do not exist today. The 10% that remain are companies that prioritize innovation strategies: companies like IBM, Whirlpool and Procter & Gamble.
Further, we know that innovation over time leads to significantly better marketplace performance.
Companies that routinely practice innovation outperform the S&P 500 by a margin of 2-to-1. (DMI)
But even with these stark realizations, a recent Harvard Business Review study revealed that innovation fails to emerge as a top business priority.
At Twisthink we’ve found that part of the challenge is truly understanding what innovation looks like and how to apply it to existing business goals. Innovation is not just game-changing, headline catching inventions. Those are magic when they happen, but most innovation comes from taking a deeper look at what already exists and making smaller changes that have sizable impact.
WHERE TO SPEND TIME AND RESOURCES ON INNOVATION: 3 PATHWAYS TO SUCCESS
So how do we get there? Just like any other business function, time and resources need to be allocated toward innovation.
Here are three pathways for applying and prioritizing innovation efforts for any company:
1. Core (70% of innovation activity).
When looking to apply resources to address innovation, plan to invest most of your time and treasure on core, business-related innovation. To get to innovation, companies need to look beyond simple efficiency and cost-effectiveness. Companies need to ensure they are looking at their products through the lens of the end-user and finding ways to improve user experience. Through research and a focus on end-users, desired functionality and improvement often becomes apparent. This might include removing redundant features or adding newer, desired functionality. Focusing on current products and business goals is the least intimidating place to innovate because business units are simply evolving what they’re already familiar with and refining proven products or services. It’s also easier to get buy-in from senior leadership when innovation is framed against existing products and goals.
2. Adjacent (20% of innovation activity).
What businesses know and learn about their core consumers and core products can be applied to entirely new and different markets beyond the current focus. Finding new markets and applications for existing products not only unlocks new revenue streams, it also broadens the company’s thinking about serving potential market segments and opportunities going forward.
3. Game changing / breakthrough (10% of innovation activity).
When most people think about innovation, game-changing breakthroughs are what comes to mind. These are products and services that are completely unique and have the potential to disrupt an industry. Be sure to invest in this area, but the smallest percentage of innovation activity should be focused here. Investing in this space and exploring the unexplored is essential to training teams to think beyond the obvious and helps to fuel the other 90% of innovation investment.
CASE STUDY: SCOTTS MIRACLE-GRO
An example we like to use at Twisthink of a company that has successfully managed their innovation portfolio with these three pathways to innovation, is Scotts Miracle-Gro.
The company started by selling seed to local farmers and were the first to develop and sell seeds to consumer markets. In addition to optimizing existing products for their customers, they clearly implemented a phase 2 exploration by examining existing products and users which took them into the pesticide industry, with brands like Ortho, Roundup and Tomcat. But the company did not stop there, Scotts Miracle-Gro, a company that originated from selling lawn seed for the outdoors, now sells indoor residential products that require no soil at all. The power of these types of products, like Aerogarden, is that the company can now reach new customers that may care about healthy gardens and fresh food, but perhaps lack the outdoor space, a green thumb, or simply prefer to stay indoors.
THINK OF INNOVATION AS AN INVESTMENT PORTFOLIO
To use a financial analogy, these three types of innovation present companies with a balanced portfolio approach to innovating. The majority of investment is in low-risk core work, which has the potential for modest gains (recall how your own investment advisor reminds you that a six or seven percent rate of return over the long haul is a good thing). Adjacent innovation is riskier, but the investment is less than a third of what companies should be putting toward their core. When adjacent innovation opens up new markets, the financial gains are greater than the modest returns. Lastly – and the riskiest – is game-changing innovation. But when it works, it has the greatest payoff for true business growth.
Just like a successfully managed financial portfolio, a successful business for the next year, or the next 100 years, requires a strategic investment of time and resources. Implementing a strategic three phase approach to innovation will build more than ideas, it will build strategies to further both long and short term growth.
Innovation is not easy, but it is essential. The first hurdle is to take an honest assessment of what’s holding the company back. With clarity on what the obstacles are, the easier it is to chart a course to overcome them.
We’ll be sharing stories of companies that are seeing their return on innovation investment in a series of blog posts intended to inspire companies to action across core, adjacent and game changing innovation – and keep them from becoming irrelevant.