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How to manage the three types of innovation

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Companies depend on innovation for their long-term existence. But in Harvard Business Review Bansi Nagji and Geoff Tuff, of the Massachusetts-based Monitor Group consulting firm, note that many corporate leaders are frustrated by their company's innovation initiatives.

"Typically they are aware of a tremendous amount of innovation going on inside their enterprises but don't feel they have a grasp on all the dispersed initiatives," they write. "The pursuit of the new feels haphazard and episodic, and they suspect that the returns on the company's total innovation investment are too low."

The authors suggest these steps to better manage your information portfolio:

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Be clear on innovation goals

Innovation is broad, from developing a new shade of nail polish to conjuring up the Internet.

To help understand and oversee all the innovations in a company, the authors developed an "innovation ambition matrix," which measures by the novelty of the company's offerings and the novelty of its consumer markets. The results track three distinct types of innovation: core, adjacent and transformational.

1. Core innovation

This covers incremental changes to existing products and incremental inroads in new markets, as with Nabisco's 100-calorie packets of Oreos.

2. Adjacent innovation

This involves leveraging something the company does well in a new market space. An example is Procter & Gamble's Swiffer, which used novel technology for dusting that would draw new customers.

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3. Transformational innovation

This focuses on creating new offerings to serve new markets. Good examples include iTunes and Starbucks.

Innovation ambition matrix

The authors' matrix tool does not offer a prescription for success. It simply gives managers a framework for classifying the various initiatives in play in their company, and an opportunity to discuss the overall ambition for the organization. A packaged goods company, for example, would have a far different array than a high-tech firm.

At the same time, in a study of the industrial, technology, and consumer goods industries, the authors found that companies tend to outperform their peers when they have the following assortment of innovations: 70 per cent core, 20 per cent adjacent, and 10 per cent transformational.

Interestingly, this is the same formula Google CEO Larry Page has been following with his company.

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Five key elements

Transformational innovations are the engines of blockbuster growth but are also the most difficult to master. To succeed, you need to pay attention to five elements of your business:

  • Talent, because the skills needed for core and adjacent innovations are different from transformational efforts;
  • Offering that talent a chance to work separately from the core business so they can escape the gravitational pull of the corporate past;
  • Sustained, and often significant, funding;
  • Strong oversight of the innovation pipeline, so that sufficient innovation is in the works to handle future needs; and
  • Measurements to help managers effectively judge the initiatives that are taken to market.

Special to The Globe and Mail

Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter

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