Balancing the Big “I” and the little “I” of Innovation

Many of us think of Innovation as that cool, new, never been done before breakthrough that completely changes the landscape of a business, its products, or the dynamics of the market. By that definition, we are referring to the Big “I” of innovation, and if successful, it can be an enormous win. These breakthrough or disruptive innovations are high risk and high return, and typically mid to long-term initiatives. It is because of the big payoff that companies should invest in these types of initiatives.

The incremental changes or improvements to businesses and products are known as the little “i” of innovation. While they are not quite as groundbreaking as the Breakthroughs, they are certainly powerful and profitable. Short-term innovations are typically focused on exploiting or optimizing existing business. They bring short-term revenue, increased efficiency, and cost-savings, which are important to keep the company going.

Having a balanced innovation portfolio is crucial to the success of your organization. Innovation has to bring tangible results and a competitive advantage to the organization by generating new revenue or reducing costs. Therefore you need a constant pipeline of new ideas, for a sustainable competitive advantage that provide short- and long-term benefits. As with any project pipeline, it is critical that all of the projects in your innovation pipeline are tied together with corporate strategy, the organization’s long-term and short-term goals, and are reviewed and reassessed on a regular basis. For true success, the shorter-term, quick-win projects must add fuel and validation to the riskier, longer-term projects.

Research reveals that firms that allocate in average 10% to radical/breakthrough initiatives (long-term), 20% to adjacent innovation (mid-term), and 70% of their innovation funds to incremental innovation (short-term), outperform their peers, typically realizing a P/E premium of 10% to 20%. [Bansi Nagji, Geoff Tuff: Managing Your Innovation Portfolio, Harvard Business Review]. Having a well-balanced, well thought-out innovation portfolio that includes both incremental and breakthrough projects is imperative for companies that want to stay relevant, profitable, and at the forefront in their marketplaces.

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