A new model of strategic innovation

In their great new book, Making Innovation Work: How to Manage It, Measure It and Profit From It, co-authors Tony Davila, Marc Epstein and Robert Shelton outline an innovation framework that is based on a portfolio model. Like a personal investment portfolio, in which you mitigate risk and increase ROI through a combination of conservative, middle ground and aggressive investments, they believe that organizations need to focus not only on breakthrough innovations, but also incremental ones.

In their great new book, Making Innovation Work: How to Manage It, Measure It and Profit From It, co-authors Tony Davila, Marc Epstein and Robert Shelton outline an innovation framework that is based on a portfolio model. Like a personal investment portfolio, in which you mitigate risk and increase ROI through a combination of conservative, middle ground and aggressive investments, they believe that organizations need to focus not only on breakthrough innovations, but also incremental ones.

“A blockbuster innovation is not a guarantee of success, just an opportunity. It must be followed up with a successive stream of innovations, from incremental to radical. Leading companies know this and have developed a portfolio of innovations from which they can draw to sustain growth.”

The authors contend that high-performing companies innovate by leveraging both new business models and improved technologies. They identify these six levers of innovation:

Business model innovation

  • Value proposition – what is sold and delivered to the market
  • Supply-chain – how it is created and delivered to the market
  • Target customer – to whom it is delivered

Technology innovation

  • Product and services – the most easily recognizable form of innovation because customers see the changes firsthand when they purchase a new or improved product.
  • Process technologies – changes in the manufacturing and delivery of the product that can result in better, faster and less expensive products and services.
  • Enabling technologies – enables a company to execute the strategy faster, and leverage time as a source of strategic advantage.

The authors further state that, for an innovation to be sustainable, it must incorporate at least one form of business model innovation and one form of technology innovation:

“Traditionally, organizations create and manage the changes to business models and parts of the organization that are far removed — physically and culturally — from where the technology change is managed.  Successful innovation depends on the integration of the mental models and the activities regarding business models and technology management.”

I’m only about 50 pages into Making Innovation Work, but I’m already impressed by this book. The innovation framework that the authors recommend is based on real-world examples and carefully-drawn conclusions. They don’t fall into the trap of saying, “all companies should do these six things to succeed at innovation.” Rather, they acknowledge that each organization has a unique combination of structure, culture, resources and capabilities. I think this may be one of the most important new innovation books of 2005!

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