Apple spent an estimated $2.6 billion on developing the first iPhone – a financial outlay that has proved more than worthwhile in the years since. But the company has also had its fair share of missteps. The music-based social network it launched in 2010, Ping, came and went without much fanfare. Even subsequent iPhones have received mixed responses from consumers. There’s no getting around it: innovation involves risk. Some gambles pay off, and some don’t.

Nevertheless, forward-looking companies know that standing still is not an option. Industries spend billions every year searching for new innovations because they know that just one idea could transform their company – leading to a golden age of new opportunities and successes. Even in sectors that might not immediately appear the most innovative, innovation is being pursued relentlessly. The Kraft Heinz company, for example, spent $112 million on research and development in 2019 alone.   

Organizations must be aware that innovation is not easy to find. Searching for new ventures takes time, expertise, and money. And some new ventures will not work out the way that a company hoped. That’s why our second pillar for developing a company’s growth machine involves building a broad portfolio of bets.

 

A portfolio approach

In the investment world, it is common knowledge that having a diversified portfolio is the best way to manage risk. Some investments will bear fruit and some will not, so placing a broad spectrum of bets is the best way to guarantee good returns overall. The same is true of a company’s internal innovation strategy.

When it comes to innovation, it is a good idea for businesses to follow the “one in ten” rule – that is, that only one in every ten innovation gambles will pay off. But while this is the normal success-rate, it doesn’t have to be the one that your company settles for. Working with the Innoleaps end-to-end innovation process and qualified execution team, the success rate of your innovation gambles could be significantly higher.

There are a variety of reasons why an innovation may not be worth persevering with. Perhaps there are internal issues, maybe the market has rejected your product, or the idea may require more financial resources than initially foreseen, making it no longer viable. Whatever the reason, there are a host of variables that could derail an innovation project. This is not the end of the world. The most innovative companies adopt a culture that embraces failure. Every unsuccessful product development process can be learned from – this way every bet in your innovation portfolio is a winning one, even if not in the way you intended.

3 horizons of innovation & the investment ratio per horizon
Portfolio distribution across all 3 horizons based on FMCG benchmark

Taking a leap

Taking a portfolio approach to innovation does not mean coming up with as many ideas as possible and simply seeing which ones work out. Each innovation needs to be properly managed from idea to scale with a “lean start-up” approach and assessed with proper innovation accounting, meaning clear timelines in which the team needs to prove certain innovation maturity milestones.

Larger organizations can find it more difficult to innovate than start-ups, partly because they expect to see large financial returns at every stage of the innovation process. However, at Innoleaps, we work with medium-sized firms, corporates, and multinationals to help them think & respond like a start-up would.

We work alongside businesses to help them build their portfolio strategy, advising them where to allocate resources, depending on whether an innovation relates to product development, efficiency gains or something more disruptive. More importantly, we ensure that the financial resources allocated to an innovation portfolio are equal to the predicted growth gap (future revenue gap), so budgets aren’t put under unnecessary strain.

Innovation involves risk but with the right portfolio management strategy, organizations can place a broad selection of bets, confident that they have the right structure in place to tell them when to back their initiatives, when to cut their losses, and what sort of returns they should expect. Businesses need to take a leap, but it needn’t be one that takes place in the dark.

The book, 10X Growth Machine provides you with more in-depth information on how large companies can successfully innovate, access to our battle-tested methodology, 12 tools and 8 canvases to help you start building your own growth machine.

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