Innovation spans a continuum of risk and reward. Wise investors stratify risk across a diverse portfolio.
This framework illustrates three horizons of innovation to manage a risk-balanced portfolio.
Core innovations should litter the bottom left of this 3×3 grid. New revenues most readily spawn from known customers with known products. Sensibly invest the majority of innovation projects in the core, through brand extensions, tie-ins and repositioning. These incremental improvements and additions to your current offerings represent relatively low risk, and a reliable but diminishing stream of predictable growth.
Of course there is danger in pushing your brands too far, diminishing their value as the portfolio of familiarity dilutes customer appreciation.
Fewer projects, but each requiring greater effort, extend into adjacent audiences and markets. Newly minted research becomes more essential as you delve into the unknown. Don’t be deluded by the seemingly familiar. Treat adjacent audiences as if new.
Finally, always explore a few bold possibilities in new frontiers. From the Dutch East India Company to Bell Laboratories, the future first glints in the distance like twinkling stars in the firmament.
Pursuing exploratory projects on the distant third horizon is like pointing your telescope at those stars.
The best way to be surprised by the future is not to look.