Breakthrough growth opportunities must have the promise of producing breakthrough returns on the investment to merit the risk. Our experience is that they can.
The article, Managing Your Innovation Portfolio by Bansi Nagji and Geoff Tuff, in the May issue of the Harvard Business Review provides a matrix as a tool for strategically managing your innovation risks for the highest returns.
Three horizons and how to invest
The three growth horizons are: Core, Adjacency and Transformational (Breakthrough). Now, overlay these horizons on your most attractive Strategic Frontier: that area of potential innovative growth inside or, importantly, outside today’s business model. (Think iTunes for Apple or pharmaceuticals for 3M)
The HBR article recommends investing 70% in the Core, 20% in the Adjacencies and 10% in Breakthroughs to receive inverse returns of 10% from the Core, 20% from Adjacencies and 70% from Breakthroughs for the high performers. So, if your “Innovation” budget is $100 million, invest $10 million in Breakthrough for a $70 million (7X) return. Reasonable?
How high can the ROI go?
We believe you can do even better. We know of companies that commit to achieving Breakthroughs seeing returns of 50X or more. Is it worth the risk? We believe it is.
Have you budgeted 10% of your growth budget for Breakthroughs? If not, why not? Our experience proves it is worth the risk.