Build an Innovation Portfolio
One of the important ideas that follows from managing innovation as a process is that to be successful at it, you need to manage a portfolio of different innovation initiatives. This means that you need to have a mix of incremental and radical innovation ideas. One good way of building an innovation portfolio is to use the three horizons model.
The three horizons model was first published in The Alchemy of Growth by Merhdad Baghai, Stephen Coley, and David White in 1999. The fundamental idea behind the model is that we need to be thinking about innovation across three time frames. Sheldon Laube recently wrote a good post on this model as well, which included a nice visualization of the model, which I have adapted slightly here:
When you innovate using the three horizons framework, the first horizon involves implementing innovations that improve your current operations, horizon two innovations are those that extend your current competencies into new, related markets, and horizon three innovations are the ones that will change the nature of your industry. In general, H1 innovations tend to be incremental, while H3 are more often radical innovations. There are several key ideas that arise when using the three horizons model.
The first is that you must have innovation efforts aimed at all three time horizons. If you only look at the exciting transformative H3 innovations, you’ll lose business to current competitors who are using incremental innovations to improve their operations. Consequently, you might have the best ideas for the future, but you’re no longer around to execute them. On the other hand, if you only focus on H1 incremental innovations that make your current business better, you’ll end up being replaced by organisations that are driving disruptive innovations in your field. Using the three horizons framework helps us balance our innovation efforts between incremental and radical, which is important.
Google basically uses a version of this model. Here is how Dave Girouard – President, Enterprise of Google describes it:
Girouard concedes that not every idea may bear fruit, but says there is internally a “formula” to assess new ideas. “We have a 70/20/10 model which Sergey Brin came up with several years ago, which is 70 per cent of our efforts are to be focused on our core business, 20 per cent should be focused on related but new areas that we’re developing off of that, and 10 per cent we should reserve for ‘crazy’ ideas, some of which may turn into great advancements and many of which may not pan out at all,” he adds.
The second issue is that horizon 2 is incredibly difficult to manage. H2 innovations seem very similar to your current products and services, and the overpowering temptation is to use the same metrics to assess their success. However, because these ideas are new, it takes time to get them configured effectively. This means that if you treat H2-oriented innovations just like H1-oriented innovations, you are likely to abandon them too quickly because it will seem like they’re not performing well. You have to figure out a way to ringfence H2 innovation efforts.
The final point is that people often mistake the three horizons model for a planning tool – it isn’t. John and I have talked about this before (here and here, to start with)- this is one of the critical mistakes people make when applying this tool. The Alchemy of Growth’s version includes a time scale, which makes it look like H3 ideas are only those that will become important in 5+ years. This isn’t really true – the time will depend on how turbulent your market is. If you are in a media industry at the moment, H3 innovation is required right now!
If you keep these three points in mind, the three horizons framework can be very useful in helping you develop a robust innovation portfolio.
Tags: Framework, Innovation
