How to Find Balance Between Incremental and Disruptive Innovation
Getting your innovation investment strategy right.
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While innovation is often obvious in hindsight, it can be a lot more complex than it first appears. In reality innovation presupposes a multitude of activities and outcomes. Innovation can be small changes to existing products (incremental) or sweeping, radical changes or entirely new products or business models (disruptive). Innovation can create a wide range of outcomes (products, services, business models and channels), and can be conducted in a closed or open fashion.
As innovators mature they realize that innovation for its own sake is less important than creating a portfolio of innovation outcomes. The biggest challenge many face in this regard is the balance between incremental and disruptive innovation - how many activities or projects should be incremental versus disruptive. I'd like to introduce and then partially discredit a 'rule of thumb' about this focus and help you think about the type of innovation you conduct.
When we place innovation activities into three "horizons" (incremental, breakthrough and disruptive), the general rule of thumb is that most companies should be doing 70% incremental, 20% breakthrough and 10% disruptive innovation. Note that this rule of thumb assumes that innovation is ongoing and that a number of activities are underway, sometimes simultaneously. For practical purposes this rule of thumb is fine, but it ignores a number of factors that can shift your investment strategy.
The biggest factors that will shift the strategy are the pace of change in the industry, the ferocity of competition and the number of new entrants or substitutes. Take for example the cell phone industry. Imagine trying to innovate with a 70% incremental goal when every other handset manufacturer is trying to create breakthroughs or disruptive innovations every 6-8 months. In slow and steady industries a 70:20:10 investment model may make sense. In industries with faster pace or more dynamic change, we may find a 40:40:20 investment strategy makes more sense, or some other investment strategy.
There is no standard
The fact that innovation has so many types and outcomes, and so many different investment strategies is what makes it so challenging from a management perspective. There is no standard approach, and even when you think you understand innovation and can predict it, it changes. Your first goal must be to define expectations for the range and type of innovation you want, followed by reasonable expectations about the investments in incremental and disruptive innovation as you build competency.
If you neglect or fail to set expectations about the balance between incremental and disruptive innovation, most if not all activities will revert to an incremental focus, because that work is easier, safer, more predictable and has less risk, but typically has far lower return. This inadvertent focus on incremental can also mean that you fail to place big bets that keep you ahead or abreast of your competition. Don't allow a lack of definition and communication to restrict the breadth of your innovation efforts.