A common ailment of new product development is the inability of companies to kill off projects that no longer demonstrate economic viability. The reason it’s so hard to kill off marginal projects is because too much time and ego has been invested.
A lesser known aliment is killing off promising new ideas too early in the innovation process. Especially at the initial moments of an idea. The initial idea has very little form, and lacks a credible story to stand the scrutiny of judgement.
Initial ideas are too easy to dismiss
In the earliest stages of idea generation, ideas are totally leveraged (i.e. no significant resources have been committed). Thus they are seldom measured or accounted for. They simply get dismissed without a lot of thought or consideration. “Who has time for all this distraction anyway?”
More often than not, these potential game changing ideas eventually emerge from outside the company. Management can only shrug its shoulders when it realizes it let another game changer slip through their fingers. They wonder “why can’t we innovate around here?”
Experienced management got to where they are by having good judgement and making good decisions. They knows how the game is played (winning customers). But what they often fail to recognize is that the current rules of today’s game will most likely will not be the same in the future.
Whether engaging in strategy making or innovation, managers need to be aware that initial ideas are vulnerable and fragile. New ideas don’t fit the current business model. And on their own don’t have enough strength to withstand the rigors of conventional wisdom and business practices.
Implementing a formal strategy making and innovation program
The first step to improving your odds of identifying a game changing new idea is to implement a formal strategy making and innovation program. It needs a dedicated cross functional team properly resourced, with a specific and clear charter to shape the future of your firm.
Most successful companies create one year operational plans to budget and execute around. For the core business, that’s a good practice. But for your strategy making and innovation teams, they need to be looking ahead to formulate new strategies of where you can play and how you can win in the future. And your the process must be designed to handle the creation and nurturing of new ideas that currently are outside of the core.
Instead of thinking of time frames in terms of years, I find it more useful to think about strategy and execution in terms of innovation time horizons (see figure 1 – adapted from Innovation Tournaments, Terwiesch & Ulrich).
Horizon 1 is where your current core business is located.
The business model is proven and working. Operational excellence and sustaining innovation are primary strategies. A one year planning horizon, with quarterly reviews, is appropriate.
Horizon 2 is where your next big opportunity will be found for most companies.
Markets, capabilities and technologies already exist or will soon exist. Often technologies and capabilities can be acquired from the outside at an acceptable cost and time frame (i.e. the risk of the unknown is manageable).
Defining market segments using the jobs-to-be-done innovation lens, will help identify underserved job users, and their specific needs that aren’t being met today. In other words, demand is already out there. People already have important jobs they need to get done, though they may not be totally aware of their jobs, nor imagine better ways of getting them done.
Horizon 2 is ripe for disruptive innovations. Creating innovative solutions for underserved and currently non-customers can provide huge growth and dividends. Horizon 2 is anywhere from 1 to 5 years out.
Horizon 3, where”far-out opportunities” exist, is by far the most risky.
It’s sexy to be at the cutting edge. But more often than not, the cutting edge is in reality the bleeding edge. It’s truly a white space. Technologies and more importantly, customers don’t exist yet. Horizon 3 is where science fiction meets reality. It can be anywhere from 5 to more than 20 years out depending on how radical the innovation is (i.e. flying cars).
Because of the risk of dealing with the uncertainty in the white space, most companies are better off adopting a “fast follower” strategy. Let the pioneers take the risk and create the markets. Be aware of future possibilities, and build capabilities that will allow you to be a successful fast follower when the time is right.
Creating “the next big thing”
Focusing your strategy making and innovation efforts on horizon 2 opportunities will yield the best results. That’s not to suggest horizon 1 opportunities should be ignored. On the contrary, if your core business is in a growth industry, then horizon 1 is where your development team should be focused.
But always be aware that the playing field will change overtime, and your ability to grow using your current business model will eventually decline. The next big opportunity won’t be found in horizon 1, rather in horizon 2.
As for horizon 3, for most firms it’s too far-out to be viable. However you should be aware of technology and social trends that exist in horizon 3, and start building capabilities to be a fast follower when the market is ready for exploitation. This strategy works for Apple, why not you?
The next question of course: how do we create a strategy making and innovation process that allows us to discover great ideas in horizon 2 and keep them alive to become the next big thing? A topic for upcoming articles.
Here’s to new horizons!