In last week’s article we talked about achieving balance both in creating an innovation process that balances creativity with structure, as well as creating a balance between “sure bets” (i.e. product extensions) and new-to-market innovations (i.e. white space opportunities).
To achieve balance in your NPD processes and your portfolio, it’s important to understand that innovation and new product development is fundamentally a knowledge transform activity. It starts off as what Roger Martin calls in his book “the Design of Business,” the Mystery (a gut feel), then to a Heuristic (rules of thumb) and ultimately becomes an Algorithm (repeatable every time). The more of a mystery an innovation team faces, the more experimenting and iteration is required. On the other hand, a line extension isn’t a mystery at all, the NPD team can cut to the chase and work from well understood requirements.
To one degree or another, all successful and repeatable NPD processes follow a generic process. It begins with setting a direction as to where an organization will compete (the strategic intent), followed by a discovery phase where ideas and concepts are created that represent potential business opportunities.
The best opportunities are then selected based on a set of business criteria, and are then transformed into customer value through the design and development phases using stage gate or similar process methods. And finally launched and accepted by the market if all goes as planned. A schematic of a generic NPD process is shown in figure 1.
Figure 1: Generic NPD Process
The generic process holds true for just about any innovation, but it doesn’t provide the details of what it really takes to discover a great idea and transform it into a winning product. And it turns out not all innovations are created equally.
As we discussed in my previous article, some new product development projects are simple line extensions. By definition, we already have the knowledge to make and market the product. It might not quite be an algorithm, but it’s pretty close to being one.
While breakthroughs and new-to-market projects, have lots of unknowns involved. Both in the technical and market dimensions. They literally start out as a mystery and it’s up to us to turn the mystery into a heuristic (taking the risk out) and ultimately into an algorithm (a proven business model we can optimize).
Uncertainty Horizon Map as an innovation execution decision tool
It’s quite obvious then, that we need to understand where an innovation fits in the knowledge funnel before deciding the details of the NPD process to develop and commercialize an initial idea. As described by Christian Terwiesh and Karl T. Ulrich in their book “Innovation Tournament,” most innovations face two types of uncertainty:
a) Technology uncertainty describes your ability to execute the opportunity as planned. If the opportunity is based on technology or capability that you have, the level of technological uncertainty is low. It’s medium if the technology exist outside your firm, and large if the opportunity is based on new discoveries or advances.
b) Market uncertainty describes your ability to understand and address the needs of a group of customers. For opportunities that address your existing customers, market uncertainty is low. It’s medium for market segments adjacent to your current business but addressed by other firms, and large for markets that are not served by anyone (i.e. the white space).
Figure 2 graphically summarizes these two dimensions. The two dimensions of technology and market knowledge and uncertainty together dictate an opportunity’s riskiness. Terwiesh and Ulrich use the terms horizon 1, horizon 2, and horizon 3 to characterize the aggregate risk that a firm faces in pursuing an opportunity. The horizon analogy relates both to the time typically required to exploit an opportunity and the availability of relevant know-how.
Figure 2: Uncertainty Horizon Map
Use Strategic Buckets to achieve balance while improving your idea discovery success rate
To achieve a balance between risk and reward, you can use horizon zones to define the mix of products in your product portfolio. Horizon 1 are the “sure bets” but also represent incremental growth. Horizon 2 has more upside than horizon 1 but are still within reach of current knowledge base inside and outside the enterprise. Whereas horizon 3 has lots of risk but represents potentially breakthrough innovation.
Managing in the zone
Each horizon zone should be managed with the right set of processes and tools specifically tailored to address the knowledge gap that exist in each horizon. Don’t forget that the very front end processes – i.e. discover and ideation – should also be managed with separate methods and tools to discover ideas that match the zone under management.
By recognizing the front end processes also need to be tailored to match the specific zone characteristics, you will improve your changes of discovering and selecting quality ideas that provide the fuel for future growth within each zone while achieving balance in your project portfolio.
So know your zone and innovate accordingly to achieve predictable growth.
Here’s to being in the zone!
Kevin