What do incremental enhancements of a legacy app and the development of a new AI product have in common? Both have to create value and innovate to some extent. In this article, I discuss the Innovation Ambition Matrix, a tool that helps you understand your product’s innovation type and, based on it, make the right strategic decisions and optimise your product portfolio.
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Overview of the Matrix
The Innovation Ambition Matrix, which was developed by Bansi Nagji and Geoff Tuff, considers the newness of the product on its horizontal axis and the newness of the market on the vertical axis. This allows us to distinguish three different innovation types: core, adjacent, and disruptive, as Figure 1 shows.[1]
Note that Nagji and Tuff use the term transformational instead of disruptive. Some people also refer to core innovations as incremental and to adjacent ones as evolutionary.[2]
Core Innovations
Core innovations optimise existing products for established markets. They draw on the skills and assets your company already has in place, and they make incremental changes to current products. These initiatives are truly core to your business, as they generate today’s revenues. Most of your company’s products are likely to be in this category—unless you work for a start-up. Examples of core innovations include Microsoft Windows and Microsoft 365, formerly known as Office. Both are major revenue sources for the company. The longer-term growth potential of core products, however, is low, and so is the amount of risk and uncertainty present. If you think of the product life cycle and its stages, then core innovations typically correspond to mature products.
Adjacent Innovations
Adjacent innovations take something your company does well into a new space—for instance, offering an existing product in a market that’s new to the company or creating a new product for a market you already serve. Take, for example, the Apple Watch and the Google Chrome browser. In both cases, the companies entered existing markets—wearables and web browsers, respectively—with a new product.
Disruptive Innovations
Adjacent innovations provide you with the benefit of leveraging existing assets. This makes the challenge of innovating successfully more manageable, at least to a certain extent. Unfortunately, they also have a significant disadvantage. They address an existing market, and their growth prospects are limited by your ability to grow the market and capture more market share—that is, to attract more users and customers.
To experience higher long-term growth, your company has to invest in disruptive innovations. Apple, for instance, disrupted the mobile phone market with the original iPhone; Nintendo did the same in the games console market with its Wii; and Amazon disrupted the retail book market with its online store.[3]
The Innovation Ambition Matrix and Product Strategy
Once you know your product’s innovation type, you can use it to understand the strategy work required and make the right strategic decisions.
Core Innovations
As they are crucial to generating the necessary profits, you should protect your core products. Focus on incrementally enhancing features, fixing bugs, and optimising the existing business model. Since the amount of uncertainty is low, the strategizing effort is comparatively small. You should therefore focus on continuous strategizing: Spend a few hours per week to review the product performance using the appropriate KPIs, carry out competitor research, discover relevant trends, and hold quarterly strategy workshops to look at bigger development and adjust the product strategy.
Adjacent Innovations
Things are different when it comes to adjacent products. To succeed with them, you’ll have to carry out product strategy discovery, research the market, develop a thorough understanding of the user and customer needs, as well as the competitive landscape and relevant trends. Additionally, you may have to investigate new technologies and review whether the current business model needs to be adapted.
You must therefore be able to take informed risks and feel safe to experiment and make mistakes. As the amount of risk and uncertainty present is considerably higher than in core innovations, you require more time to discover an effective product strategy, often several weeks to a couple of months.
Disruptive Innovations
As important as disruptive products are for enabling future growth and securing the long-term prosperity of your business, most established companies struggle to leverage them effectively. Here is why: To achieve disruption, a company must do things differently and disrupt itself, at least to a certain extent. It has to discontinue some of the practices that have helped it become successful, acquire new skills, find new business models, and often embrace, and in some cases develop, new technologies.[4]
Think of the touch screen for the iPhone and the motion controller for the Wii, for example.[5] The effort to create an effective product strategy is therefore even higher than for adjacent innovations. It may take you several months to find a strategy that is likely to result in a beneficial, technically feasible, economically viable, and ethical product.
What’s more, succeeding with disruptive innovations requires an entrepreneurial mindset. You’ll have to be able to experiment with new processes, technologies, and tools, make mistakes, fail, and recover quickly. Using an incubator can help you with this. An incubator is a new, temporary business unit that is loosely coupled to the rest of the organisation. It offers the autonomy to do things differently and develop brand-new products. As Peter Drucker writes in his book Innovation and Entrepreneurship, “The best, and perhaps the only, way to avoid killing off the new (…) is to set up the innovative project from the start as a separate business.”[6]
Figure 2 summarises the strategizing effort for the three innovation types.
The Innovation Ambition Matrix and Portfolio Management
So far, I’ve focused on the connection between the innovation type and the product strategy. But that’s not all the Innovation Ambition Matrix can be used for. In fact, it was created to help companies effectively manage their product portfolios.
As a rule of thumb, established companies should focus about 70% of their innovation efforts on core innovations, roughly 20% on adjacent ones, and about 10% on disruptive innovations, according to Nagji and Tuff. This helps companies create a balanced portfolio that generates the necessary profits (core products) and invests in future revenue sources (adjacent and disruptive products).
Over time, successful disruptive and adjacent products turn into core ones. A good example is the iPhone. While the first version was a disruptive innovation, it has become a major revenue source for Apple. The bottom line is: To grow organically, companies must continually look for new growth opportunities and invest in adjacent and disruptive products—the products that generate tomorrow’s cash.[7]
As the 70-20-10 rule is a general recommendation, you may well have to adjust the percentages for your company. For example, a technology firm may spend only 45% of its innovation effort on core innovations, but 40% on adjacent and 15% on disruptive ones. Compare this to an established consumer company, which may benefit from investing up to 80% in core innovations.[8] No matter what ratio is right for you, make sure that you regularly review the product portfolio and invest in new innovation initiatives.
Notes
[1] Bansi Nagji and Geoff Tuff, “Managing Your Innovation Portfolio,” Harvard Business Review, May 2012.
[2] The Innovation Ambition Matrix is based on the Ansoff matrix, which explores the relationship between the product and the market. It distinguishes an existing product from a new product and an existing market from a new one. This gives rise to four growth strategies: market penetration, product development, market development, and diversification. Market penetration means incrementally enhancing an existing product to increase its market share. Product development involves creating a new product for an existing market—a market you already serve. Market development refers to entering a market that’s new to your company with an existing product. Diversification implies developing a new product for a new market. See Igor Ansoff, “Strategies for Diversification,” Harvard Business Review 35, Sep–Oct 1957.
[3] A disruptive innovation typically solves a customer problem in a better, more convenient, or cheaper way than existing alternatives (see Clayton Christensen’s book The Innovator’s Dilemma, which I have referenced in footnote 4). It results in not only a new product, but it also creates a new market by addressing nonconsumption: It attracts people who did not take advantage of similar products. But as the disruptive product matures, it makes inroads into an established market, reconstructs market boundaries, and disrupts the market. Take the iPhone as an example. The established players, including Nokia and BlackBerry, did not perceive the original iPhone as a threat; its business features, such as email integration, were too weak. But as the iPhone improved and offered an increasing range of business and productivity apps, more and more people began to use the product, the market share of Nokia and BlackBerry phones started to decline, and the distinction between business and consumer segments became irrelevant.
[4] See Clayton Christensen, 1997, The Innovator’s Dilemma, Harvard Business School Press, and Clayton Christensen and Michael Raynor, 2013, The Innovator’s Solution, 2nd ed., Harvard Business Review Press.
[5] Note that a disruptive technology like generative AI does not automatically achieve disruption. As explained in footnote 3, a disruptive innovation creates a new market in addition to a new product.
[6] Peter Drucker, 1985, Innovation and Entrepreneurship, Harper & Row, p. 163.
[7] This is in line with recommendations of other portfolio management tools like the Product Portfolio Matrix, which I discuss in the aptly named article The Product Portfolio Matrix.
[8] See Bansi Nagji and Geoff Tuff, “Managing Your Innovation Portfolio,” Harvard Business Review, May 2012, p. 71.
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