Companies tend to innovate at various levels to either address the needs of the customers in radically a new way or just to uplift their presence and viability in the market.
To innovate, a company should understand and act strategically rather than believing that adhoc efforts taken periodically would lead to innovation.
To come up with a better innovation strategy, it is important to understand the type of innovation a product represents. Innovation Ambition Matrix is a simple tool that can be used to classify the type of innovation. It includes 3 types – Core, Adjacent and Disruptive. Innovation Ambition Matrix was originally developed by the mathematician H. Igor Ansoff followed by Bansi Naghi and Geoff Tuff.
Innovation Ambition Matrix.
This matrix helps company classify their innovation in to 3 types – Core, Adjacent and Disruptive.
Core innovations are improvements made on existing products. It optimises the current product using the same skills, assets or teams your company already have in place. Most of the companies focus on core innovations.
It is recommended to follow a conservative approach and focus on operational excellence. As the product is serving the needs of existing customers of established market, it is important to protect the product, avoid mistakes and keep the risks low for core innovation.
Powerpoint Designer – Microsoft 365 – Core innovations example
Microsoft brought in Designer feature to its existing PowerPoint product. This feature automatically generates design ideas to slides based to the content found on the slides. This helps customers focus on the content and make use of the automatic design layout and visuals suggestions. Cool isn’t ? I have benefited from this feature a lot many times for my demo presentations. This is pretty useful!
The above example illustrates how Core Innovation focuses on incremental changes to existing products.
Adjacent innovation has a higher ambition than core innovations. It takes existing product to a new market space or create a new product for existing markets by leveraging something that the company does well. It takes longer development time and has a bit more risk than core innovations.
Apple Watch – Adjacent innovations example
Apple Watch falls under adjacent innovation. It is a new product that targets existing wearables market. It requires new customer insights and technologies to help Apple open up in to new revenue sources.
Disruptive innovation refers to a company that enters in to a low-end or new market space. They create a way to turn a non customer into customers and successfully challenge and outperform established companies.
Netflix – Disruptive innovations example
Netflix, an online streaming service was once a dvd rental company that shipped movies through mail carriers to US customers. They started small focusing on the movie buffs and went on to become the largest subscription service as an online video streaming platform. Netflix have successfully disrupted the cable companies and we now have all big players such as Apple, HBO, Amazon and Disney in the game providing streaming services and producing original content.
What innovation type to choose ?
Now that we know the 3 innovation types, you can use this tool to identify the categories you need to focus on. It is also not necessary to pick one innovation type over the other. You can follow a balanced approach by tapping in to all three categories and hit a golden ratio. Here’s a reference model of innovation type and their rewards ratio.
Golden ratio – Innovation type and revenue ratio
HBR have done a research on the companies and found a pattern on the allocation of resources and it’s reward ratio. The 70-20-10 investment made on the innovation type yields inverse revenue E.g 70% of core investment contributed to 10% of long term revenue, 20% of adjacent investment contributed 20% of revenue and 10% of investment made on disruptive innovation yields 70% of long-term revenue.
HBR states that the actual golden ratio differs from company to company and the data shown are only an average based on their study hence do not use this as the magic formula.
As product manager, it is important to be aware of the different innovation types your business currently use. This helps you decide the type of product innovation to choose to grow your business for today and future.