Tier 2 innovation

Tier 2 InnovationIt’s conference season again, and I was browsing some of the leading innovation conferences being touted over the next few months and I was a bit disturbed at what I saw. Here are some of the issues being covered by them:

  • What are the most effective strategies to manage the real risks that a company faces with breakthrough products that will be the next ‘big’ thing?
  • Where are companies finding the funding for the innovation that will ensure their long-term survival and growth?
  • How do leaders create a company-wide culture that rewards innovation?
  • In what ways is public policy limiting innovation and what solutions are available?
  • Is innovation big enough in America and creating the economic opportunities this country needs?
  • How has the state of the global economy impacted companies’ ability to dream and act big?•Is innovation big enough at your company to create the profits you need?
  • Are we focusing on applications and software to the detriment of revolutionary new products?

They missed one out: Giant meteorite set to destroy Earth on Wednesday!

Are we missing the purpose of innovation in the hyperbole we create around the subject? I think we are. The understanding of what innovation is all about has become so blurred that it has created a multi-headed monster out of itself. We’ve seem to have adopted the attitude that the innovation we are looking for is an iPhone, a Tesla car, a Google algorithm or a Facebook type social network. Innovation doesn’t have to be the company-wide, all-encompassing, risk-everything blockbuster that will take a company on to a glorious future.

Innovation comes in all shapes, sizes and levels and is quite simply the act of introducing new methods or ideas that are advanced, original and creative in thinking.

For those familiar with modern portfolio theory, there is the concept of the efficient frontier in a mixed share portfolio. If you have two shares, one with a higher return but at higher risk and one with a lower return at a lower risk, the efficient frontier shows that if you take different ratios of holdings in the two shares you can obtain good returns but at a lower level of risk than even the lowest risk share would give you alone.

Innovation is very similar in this regard. There is the high return, high risk big-new-thing approach at one end while at the other is the lower risk and lower return create-a-culture-of-innovation approach. In the middle there will be an optimum type of innovation that delivers good returns at a substantially lower risk than either of these two extremes of innovation.

This optimum point is what we call Tier 2 innovation. It isn’t about the big ticket items and neither is it about employees coming up with a myriad of small innovations – which incidentally can clog up any corporate innovation system. Tier 2 innovation isn’t about creating the completely new thing, it’s about creating an exciting variation on an existing asset. An asset can be a product, service, customer segment, or any other aspect of the business. It’s something that the company is familiar with and has the knowledge and systems to deliver, where an innovative development has created a newness that will appeal to customers and so generate additional revenues.

While there will always be the need for the Top Tier innovation work on the big new thing, most businesses actually need the less risky Tier 2 approach. Tier 2 innovation is about making your existing assets dance and come to life. It’s about taking areas like product lines and instead of managing them; we find innovative ways to drive big growth by making little changes. It’s finding these levers that’s the skilful part of the innovation process here.

Here’s a thought. Perhaps innovation has become a grossly over-traded word. I heard innovation described as the crack-cocaine for CEOs. Everybody seems to do innovation and every little thing achieved by someone that they haven’t done before is deemed to be innovative. Maybe it’s time to forget innovation and let the term go the way of A-teams, Paradigm Shifts and Giving 110% effort!

But what would we replace it with? Mmmm, there’s a good question…

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