New and fast-moving technologies and start-ups threaten most industries nowadays. Therefore innovation becomes a necessity to adapt quickly to new changes. There are many different innovation processes you can implement in your company. But one size does NOT fit all of your company’s innovation need. In this blog I describe the 3 different innovation processes for different horizons.
Many of our clients have questions related to which innovation process to use for which purpose. There are many different innovation processes which support different time horizons. What kind of innovation processes does your company need? The “three horizons”-model is a great model to asses your company’s innovation portfolio. (book: “The alchemy of Growth: practical insights for building the enduring enterprise” by S. Coley -McKinsey).
It distinguishes three different types of horizons for a company to invest in; therefore it offers a strategy framework for developing new businesses. Be aware the three horizons are managed concurrently; the initiatives pay off over different time frames. A healthy balance of your project portfolio between these horizons can be 70-20-10%. This depends also on the industry and urgency.
Each horizon has a different scope and focus. In order to develop the business in each different horizon we need different innovation processes. I have connected each horizon to a different type of innovation process. These innovation processes develop the different businesses over the different time horizons. Therefore it offers a strong link between innovation and strategy.
Below I have linked and described the different innovation processes with the different horizons.
-Horizon 1 is about defending your core business. For these kinds of projects an innovation process that has an incremental focus is needed. It adds immediately value to your core business. Incremental innovation process is done in your „business as usual” activities. The process has to do with quickly adopt new functionalities of existing products or new markets for existing products. In many cases this means adopting or experimenting with new processes or methodologies. Therefore a standardized type of development process of your product will be sufficient to support incremental innovation.
Example: Implementing Agile Scrum as a new methodology for developing software is a good example of Incremental innovation. It offers faster releases of new versions of current products. Therefore its deals with defending your core business.
-Horizon 2 is about emerging businesses; they could transform your company but not without a considerable investment. Though substantial revenues may not occur until 4-5 years. These kind of initiatives replaces or complement your core business. The innovation processes that create these kind of businesses cannot take place in your going-concern activities because it is takes place outside the current scope of the managers. Although they can relate to these kind of emerging business, they do not have budget or the resources to support these activities. For developing these kind of activities innovation-processes are needed that are able to (quickly) validate and experiment with new technologies and or markets. Next to the validation the scaling of the new business have to be supported with these kinds of processes. It requires fine-tuning to specific company characteristics and some pivoting during the validation and scaling. Emerging Innovation has to do with Customer Validation processes (such as Lean Start-Up). Very often this is done by a specialized department (business development, strategy departments, etc.) within your company not by the current business lines (short attention span).
Example: A bank that offers Crowdfunding next to the traditional financial services is good example of an emerging innovation for supporting horizon 2. More and more initiatives emerge around alternative ways of financing. Experimenting with these kind of initiatives are a clear example of emerging businesses.
-Horizon 3 has to do with small investments on multiple options (research, pilots, alliances and minority stakes) in order to spot the seeds of winning businesses. The focus of this horizon has to do with creating a portfolio of multiple projects that cover all possible futures (scenario’s) of the company. This process deals with paradigm shifts and awareness. It deals with fundamentally new businesses; therefore the supported innovation processes are Radical innovation. These businesses are not only outside of the scope of the managers of the current business (horizon 1), they probably cannot relate to these kind of radical innovative projects. Preferably it directly relates to the strategic scenarios of the company.
Example: A bank that starts with dealing in art is a good example of a radical innovation for supporting horizon 3. It requires a new paradigm of how to capitalize on a core competence of a financial institution: in this case ”trust”. In both industries trust is a core asset.
I hope to offer you a set of different innovations tools and processes to manage different kind of innovation horizons within your company. Next to the different innovation processes, you will need different capabilities in order to successfully manage the three horizons. Next time I look into these kind of capabilities.