Just read an article in Forbes titled “Are You and Innovator?”, written by HBS professor and author Clayton Christensen.
According to this article, a 2005 survey by the Boston Consulting Group found that 90% of executives believed that their company’s growth and success requires true innovation. However, as Christensen notes (and I think most people would agree) driving business growth through true innovation is easier said than done.
What makes it difficult? Christensen says:
The problem isn’t bad management, as I explained in The Innovator’s Dilemma. In fact, many companies get into trouble precisely because they follow the principles of good management. They listen to their best customers, innovate to meet those customers’ needs, charge higher prices, report record profits and miss a transformational change innocently incubating at the fringes of their respective markets.
What to do? Christensen suggests the following:
1. Develop a balanced portfolio with different types of growth strategies.
The goal is to create an innovation portfolio that balances “core-sustaining” investments (better products that a company hopes to sell for higher prices to current customers) with those intended to create new growth businesses.
Christensen notes that when many companies examine their innovation portfolios, they discover that they are out of balance, with the vast majority of their efforts focused on sustaining improvements.
2. Allocate resources to achieve a balanced innovation portfolio.
3. Have a distinct screening and shaping process for different types of opportunities.
At many companies, new proposals must meet certain financial metrics – such as net present value or return on investment – before they’re given the green light. This is similar to what I saw when I worked as a financial analyst at IBM – and can help streamline the development and commercialization of sustaining innovations.
However, these traditional financial metrics are often not as useful for disruptive innovation projects that branch away from the core business. Christensen suggests companies should develop a checklist of qualitative measures to which a new product should conform.
Start by looking at previous innovation efforts and assess what worked and what failed. Successful disruptive solutions, for example, might be simpler, do-it-at-home versions of a previously complex product. Often they have low overhead costs and high asset utilization, which allows companies to offer low prices or serve small markets. And in many cases, the pattern you identify can point the way to high-potential opportunities more reliably than financial metrics.
