Innovation Management – The Ultimate Guide

Concepts and models for innovation management

Having established that innovation management is a complex beast, it helps to understand
some of the more widely accepted theories, models and concepts related to innovation
management.

While none of them have the ability to capture the essence of innovation by themselves, they
each make an excellent point (or two) about innovation which we can learn from and apply to
our thinking.

Types of innovation

You’ve probably heard people talk about disruptive innovation, incremental innovation, radical
innovation and sustaining innovation. These are all terms people use to classify innovation
into different types.

There are probably as many different typologies as there are authors on the topic since
everyone loves to have their own definitions for these terms. This obviously doesn’t help with
the confusion.

We’ve tried to combine the terms and explain how they relate to each other with
our Innovation Matrix.
You can use the innovation matrix to clarify the concepts to yourself, as well as to classify the
initiatives in your innovation portfolio.

For a more extensive explanation of the matrix and it’s uses, please refer to our post
on managing disruptive innovation with the Innovation Matrix.

Innovator’s dilemma

Clayton Christensen introduced this concept in 1997 with his book that bears the same name.

The core of the dilemma is that in the beginning innovation, and more specifically the
disruptive kind, is usually inferior to existing products and services on the market as
measured with the same metrics and value drivers.

This, in turn, means that the new products are initially valuable only to a small subset of the
market with different value drivers and won’t be of interest for the mainstream or high-end
customers, which is where the company typically has higher profit margins.

In other words, disruptive innovation initially caters to only a small and not-very-profitable
customer base, which is why established companies with rational decision-making processes
usually decide not to invest in these disruptive initiatives in the early stages.
Once the disruptive innovation enters the mainstream, the established companies typically
pick up on them again, however at that point it’s often already too late since the new entrant is
on the exponential part of the S-curve. This makes catching up quite unlikely, even with the
additional resources the incumbent has at their disposal.

While not perfect, this dilemma is an important concept to understand if you want to make
innovation happen in an established organization.

The Technology adoption life cycle

The Technology adoption life cycle was first introduced by Geoffrey Moore in his 1991
book, Crossing the Chasm.

It builds on the research on the diffusion of innovations and explains why companies with

disruptively innovative products (and/or technology) often have a hard time reaching success
with the mainstream market.

The basic idea is that the entire market can be represented with a bell curve that can be
divided into segments based on how eager the customers are to adopt new technology with
each segment having their own sets of expectations and desires.
Other innovators are usually the first ones to adopt new innovations. They want to be the first
ones to try new things and are willing to tinker by themselves to make things work. After these
initial innovators, there is a slightly larger segment of early adopters who aren’t quite as willing
(or able) to tinker but are otherwise almost as eager to get their hands on new technology.

Innovators and early adopters are continuously looking for ways to do things better and
consider technology and innovations as sources of competitive advantage. As a result, they
are often willing to pay a premium for new innovations, even though they might be lacking, or
even defective, in certain ways.

The majority, however, is much more pragmatic. Even the early majority is much more risk-
averse; they are looking for proven solutions at a reasonable price.

The chasm, then, is the huge difference between the expectations of the early adopters
and the early majority.

For companies to be able to cross the chasm, they need to find new ways to make their
products more attractive in the eyes of the early majority.

This is both a product and a marketing issue.

Developing the product and changing the way you talk about it to suit the majority can often
mean making compromises that alienate the innovators and the early adopters that allowed
your early success. This can be a very painful process that many companies find difficult, not
only psychologically, but also in practice.

However, if you are able to make the leap, you are likely to be able to have a more scalable,
and often a more profitable business, as the majority is where the economies of scale start to
kick in.
This concept is very closely linked to the innovator’s dilemma. For a disruptive innovation to
be successful and find ways to take over the mainstream market from the incumbent, they
need to figure out ways to cross the chasm.

The three horizons of growth

Created by McKinsey & Company, the Three horizons of growth is quite a popular model for
helping organizations structure their initiatives and find an appropriate balance between short-
term and long-term projects in their portfolio.

The basic idea of the model is quite simple: for a company to maximize their growth potential,
they need to simultaneously work on projects within all three of the horizons.

To maximize growth potential, you need to simultaneously work on projects for all
three horizons.

If you focus solely on incrementally improving your existing business with horizon 1 initiatives,
you might see solid short-term increases in your numbers, but will ultimately sacrifice the
long-term growth of the company in doing so.

The reverse applies if you focus solely on disruptive innovation of horizon 3 and completely
neglect your current business. You might have a bright future, but you might be out of
business before you ever get there.

By finding the right balance, you’ll not only maximize your growth potential, but
also decrease the risk of your business portfolio.

The 70-20-10 rule

First introduced by then Google CEO Eric Schmidt, the 70-20-10 rule is a simple rule for
allocating resources between “the core”, “the adjacent” and “the innovative stuff”, often
referred to as “the transformational”.

Here, the core refers to all the activities that make up the majority of existing business of the
organization, whereas the adjacent simply means new improvements or business areas that
are logical extensions for the current business, such as opening new geographical markets
for the existing services or products.

The transformational, however, is the most difficult one to grasp. That can mean basically
anything that is brand new for the organization, such as certain types of innovations.

In addition to anecdotal evidence from Google, later research, has also seemed to confirm
that companies that allocate their resources in this manner typically outperform their peers by
a margin of 10-20% (as measured with their P/E ratio).

Their research also identified that the long-term returns for each type of investments are
actually the inverse of the resources invested.

By now, this might sound eerily familiar since you’ve just read about the three horizons model.
They are, in fact, talking about the exact same thing. Thus, we can combine the two for a
more practical look at the issue.

Having said that, don’t consider the 70-20-10 as the be-all end-all that every business should
adopt. Depending on your circumstances and your strategic decisions, a different allocation
can definitely prove to be much more suitable for your situation.

The 70-20-10 rule is simply a highly practical and reasonable starting point for most
organizations. 

A Guide to Innovation Management

Models and Theories
There are many variations of the Innovation Matrix, but broadly speaking, there are four
main ‘types’ of innovation which can be used to measure impact level. These can be
categorised within the Innovation Matrix as:

 Radical or Breakthrough
 Incremental or Basic
 Disruptive
 Sustaining

Incremental vs Radical

Incremental
This is the most common form of innovation, and is used to describe slow, gradual
changes to a product or service that already exists. Being the most conservative option, it
is the most widely used and accessible. Large scale change often requires a large budget,
which is risky and not always accessible to smaller businesses. It does not create a new
market, but rather builds on the core product. Take Cadbury’s or Coca Cola as an
example - they do not need to reinvent the wheel of their product, but rather introduce new
flavours or concepts as an addition to keep themselves fresh.

Incremental innovation straddles a fine line: adding unnecessary extras to an existing

product for the sake of newness can risk over complication, while letting products that sit
stale for too long can get left behind.

Radical
Radical innovation is true to its name - it is revolutionary, inventive and changes the way
society functions. Examples could include the steam engine, the telephone, the
automobile, electricity, with computers arriving on the scene in the 1980s, and then the
internet. Our near future will see enormous leaps forward in revolutionary technology,
such as artificial intelligence, the way we store energy, genome sequencing and
blockchain.  While rare, this form of innovation not only changes markets but has the
potential to change entire economies as well.

Sustaining vs. Disruptive

Sustaining
Similar to incremental, sustaining innovation also stays in line with the core function of the
product, while slowly improving it. This time, think of smartphone technology - the core
function of the product remains the same, but every year a new and improved version is
released, and customers look forward to and expect the constant change to the existing
product. This type of innovation is seen to be the most profitable form of low-risk change.

Disruptive
Completely opposite to the previous, disruptive innovation introduces an entirely new
value network. Like the stock market, if successful the rewards have huge payoff, but can
also risk huge failure if unsuccessful. This process works by creating a brand new market,
or entering into an existing one and completely changing how it functions. Streaming
services such as Netflix are one of the most widely used examples to show the complete
transformation of an industry.

Further branches: Architectural vs Modular

Additional categories to note would be architectural vs modular. Architectural grows out of
an incremental type of innovation; while incremental would be more about the renovations
that happen to core components of a product, architectural refers to the process by which
interactions between core components are shifting but do not change the core function of
the product.  An example could be the a disc-man; the parts already existed in another
form, but the product was new based on how these core components interacted
differently. Modular refers to the process by which core components undergo a complete
redesign, but interactions between them remain the same, such as laptops incorporating a
touchscreen option.
Categorising the internal processes
of innovation
Moving our focus from the impact level side of innovation, the next categories to
understand are the innovation strategies that take place at the source, or rather the
internal innovation journey a product goes on from idea to customers. The Doblin
Innovation framework is one of the most widely used systems of categorisation for this,
and it has 3 main branches:

 Business Innovation
 Technology or Product Innovation
 Marketing Innovation

Within each branch are further stems that act as subcategories - referred to as the 10
types of innovation within the Doblin framework - which we will outline below. Like any
task, you need to be realistic about where to focus - what needs the most attention? Are
you analyzing the right area for your current competition? Knowing where innovation is
needed is fundamental.

Business Innovation
This branch looks at how a business organises itself to ensure it’s creating the right
environment for innovation to thrive, where all the different components that must be
working together in order to create a healthy ecosystem. Whether you’re looking for a
competitive advantage or trying to find new streams of revenue, the business model is the
first step before anything else for creating and maintaining value. It is a good idea to
analyze your current model, but also make sure your current efforts are consistent with
your long term goals. Internally focused, the business - or configuration - is the umbrella
for:

 The Profit Model; how you intend to make money.

 The Network; how you will collaborate to create.
 The Structure; how you organize your company.
 The Process; the method for carrying out the work. Perhaps a new technology is
needed to save time and money, or serve customers better in the long run. It could
 also be how you improve on collaboration or communication, using a service like
Pondr to bring fundamental change to how your company makes decisions.

Technology or Product Innovation

This is the area most of us associate ‘innovation’ with, because it introduces something
concrete and new into the world. Because of this, we tend to link innovation with grander
ideas or invention and brand new technologies, but as we’ve learned from some of the
impact levels above, radical changes can also result from small enhancements that are
ongoing over time. This branch is an important area to focus on, no matter the scale of
transformation or change that’s taking place. Within this branch would be the stems of:

 Product performance; its features and how it functions

 The Product System; products and complimentary services offered. This is often the
most straightforward and visible area that gets the most attention.

Marketing Innovation
This area is about the market - or how customers experience the product. It does not
solely refer to advertising, it is also the research and innovative ideas that go into finding
new markets or creating new value that could translate into the creation of a new market
down the line. Marketing tactics are worth revisiting on a constant basis, and some stems
of focus include:

 Service; improvements that add value to what you are offering

 Your Channel; how you are delivering your product
 Your Brand; how you represent who you are
 Customer Engagement; how you interact with your clientele. Maybe the focus is on
upgrading to a more user friendly interface, or focusing on new technologies in
marketing to promote your services.

Theories of Innovation
Now that we’ve gone through the different categories and models of innovation that exist,
studying some of the areas most influential theories will make a little more sense. Within
this section we will look at 5 of the main innovation theories:
  The Innovator’s Dilemma
 The Technology Adoption Lifecycle
 Jobs-to-be-Done Framework
 The 3 Horizon’s
 The 70-20-10

Innovator's Dilemma
This theory - coined by Harvard professor and businessman Clayton Christensen in his
1997 book The Innovator’s Dilemma: When New Technologies Cause Great Firms to
Fail -  explains why traditional modes of measuring innovation, such as solely looking at
profit, does not give a holistic picture of a company’s potential trajectory. He uses his
theory of disruptive innovation - the “process whereby a smaller company with fewer
resources is able to successfully challenge established incumbent businesses” - to
demonstrate this. Take Netflix for example: in their early stages, the market was not yet
ready for their innovative ideas to take hold. What they offered was still proving inferior to
Blockbuster customers, but eventually as the technology began to change as well, it
became profitable within the mainstream. Christensen notes that this phenomenon
creates an S-curve whereby a product initially has no value to mainstream customers, but
in time and with new iterations, the value expands quickly and exponentially.

If Netflix had measured their innovation methods during the beginning stages against their
competitors, the results would have made them want to abandon ship all together. That’s
why it’s so important to know what stage and type of innovation of your product or
business fits into, before trying to measure it.

In his book, Christensen notes that it is good management itself that is the root cause of
getting disrupted, such as ‘listening to customers, tracking competitors actions carefully,
investing resources to design and build higher performance products that will yield greater
profit.’ He notes that it is the smaller companies, who can afford to ignore these
components and focus solely on technological advancement, that allows them to move in
with superior performance.

The Technology Adoption Lifecycle

Introduced by Goeffrey Moore in his book Crossing the Chasm, this theory provides some
insight into disruptive technologies, and the reasons why it faces difficulties in the early
stages of getting their product into the mainstream market. Closely linked to the
Innovator’s Dilemma, this theory uses a psychological lens to dissect why a new
innovation is not adopted or accepted initially.

Moore uses ‘Diffusion of Innovation’ as a reference point, which is a 1962 theory by

Everett Rogers that seeks to explain the spread of new technologies or ideas. He
categorises his ideas into four main elements that influence this spread: the innovation,
channels of communication, time, and social system. He notes that the innovation is not
self sustaining until it is widely adopted or reaches ‘critical mass.’ He categorises
‘adopters’ into a bell curve by level of innovativeness, or the ‘degree to which an individual
adopts an idea’:

Innovators ----->  Early Adopters  ----->  Early Majority  ----->  Late Majority -----> Laggards

It is within this scale that Moore introduced his theory of Crossing the Chasm, which
argues that between the Early Adopters and the Early Majority, there is a chasm - or gap -
which slows down or impedes the innovation journey. The Early Adopters are seen as
visionaries and tech enthusiasts, and the Early Majority would be defined as being more
pragmatic. His advice is to focus on one group at a time, and create momentum within the
Early Adopters which gains enough traction for the hurdle to the next phase. This might
mean creating your brand especially for a niche market at first. Once a product reaches
the Early Majority, it moves quickly through to Laggards.

Jobs-to-be-Done framework
This theory really is as straightforward as it sounds. Developed by strategy & innovation
firm Strategyn, the theory acts as a reminder not to forget what it is your customers
actually need: to get their job done. Whether the job is small, or big - such as finding a
fulfilling career - a customer essentially buys a product to help them finish a job. If the
product is insufficient at helping them get their job done, they will not ‘rehire' it so to speak.

In a 2016 issue of the Harvard Business Review titled ‘Know Your Customer’, they explore a
case study of the Jobs-to be-Done methodology which explores the social and emotional
dimensions of this theory. They looked at a retirement condo development plan, which
had weak sales before they changed their approach. Once the company began to realise
that creating more nifty features for selling points was not proving helpful, they changed
the services they offered, which helped ‘buyers with the move and with their decisions
about what to keep and to discard.’ It was after this new approach was implemented that
sales took off.

Strategyn has also developed a framework called ‘The Jobs Map’ to help locate
opportunities where your customer’s may benefit from help.  The map is laid out in 8
steps:

1. Define; determine what the goals are

2. Locate; gather the information and resources needed to do the job
3. Prepare; make sure you have the right environment set up to do the job
4. Confirm; verify that they’re ready to do the job
5. Execute; carry out the job
6. Monitor; assess whether the job is being carried out successfully or not
7. Modify; make alterations to improve execution
8. Conclude; finish the job or prepare to repeat it

The three horizons of growth

This theory, devised by McKinsey & Company, is a growth management strategy that
advises finding a balance between the short and long term as it relates to projects in a
portfolio. To maximise growth potential, the method advises working on projects
simultaneously within three defined horizons:

Horizon 1; this phase relates to short term projects, with a view of seeing growth take
place within the 1-3 year range. It often focuses on the core of the business and is where
tangible results can be measured in a yearly review.

Horizon 2; this is where your company would explore and discover new expansions with
an expectation to see results within the range of 2-5 years. This type of innovation could
mean an idea taken from another market and applied to a new one, or the adoption of new
technology or processes.

Horizon 3; This phase is for innovations that explore entirely new possibilities and
competencies, and as such should be viewed within the 5-12 year lens. This is where the
planning and preparing for long term ventures is implemented and is where the more
radical, disruptive or architectural impact levels would happen.
The reason for implementing a simultaneous strategy is not only for maximising growth
potential, but it also decreases risk at the same time. If you are only focused on disruptive
innovation, you may jeopardize your core business and what keeps it afloat in the first
place. If you were to focus only on incremental change, you experience profit in the short
term but risk obstructing the view for the future of your business and the directions it can
go in.

The 70-20-10 rule

The last theory is adapted from the theory of learning which argues that you learn 70% by
doing the work, 20% from those around you and 10% from the academic side of courses
or reading.  Former CEO of Google Eric Schmidt then used this theory for models of
innovation, and created a framework for employees at Google to use:

 70% focus on the core of the business

 20% to focus on related projects
 10% could be allocated for anything deemed unrelated or new

This essentially works within the Three Horizons framework, but gives a more detailed
approach to how much time should be given to each phase. With slightly different
terminology, he refers to the 70% area as the ‘core’ which would be the main operation of
the business, the 20% area as ‘adjacent’ which are extensions and improvements, and the
10% is described as ‘transformational’ as it entails ideas that would bring about brand new
directions for the company.

Conclusion
No matter what impact level of innovation you are exploring, or which stage or horizon you
are journeying into, understanding the importance of innovation at every stage should be
at the core of any business venture. Ideation, invention, innovation - whatever term you
want to use to package the science of ‘ideas’ - should be a constant point of focus. As the
organisation of ideas can be a messy and disorganized process, make sure you have a
good ideation software program which allows you to constantly define, assess and
evaluate the health of your innovation. Innovation can only thrive and expand to its fullest
potential if it is housed within the right ecosystem.