The Idea in Brief
Incremental innovations (small, safe changes to your firm's offerings) make up 85%-90% of companies' development portfolios. But "little i" projects rarely produce competitive advantage. For that, you need "Big I" innovations--offerings new to your organization or the world. Yes, they're risky. But avoid them, and you may strangle your company's growth.
Day recommends a solution: Increase the proportion of major innovations in your portfolio while carefully managing their risks. Two tools can help:
A risk matrix enables you to estimate each project's probability of success or failure based on how big a stretch it is for your firm. The less familiar the intended market and the product or technology, the higher the risk.
The R-W-W ("real," "win," "worth it") screen helps you evaluate projects' feasibility. The first step in using this tool--asking "Is it real" questions--helps you determine whether customers want your innovation and, if so, whether you can build it.
The Idea in Practice
Using the Risk Matrix
Assemble a team to assess each innovation project's potential risk using these criteria:
- How closely target customers' behavior will match current customers'
- How relevant the company's brand is to the intended market
- How applicable your capabilities are to the new product
Neglect to assess risk, and you may make a major misstep.
When McDonald's started offering pizza, it assumed the new product was closely adjacent to existing ones. So it targeted its usual customers. But employees couldn't make and serve a pizza within 30 seconds--which violated McDonald's service-delivery model. And the company's brand didn't give "permission" to offer pizza. The project failed.
Using the R-W-W Screen
Used throughout a product's development, the R-W-W screen exposes faulty assumptions, knowledge gaps, sources of risk, and problems suggesting termination. To employ this tool, repeatedly test each project's viability according to these criteria:
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Copyright 2007 Harvard Business School Publishing Corporation. All rights reserved.
Harvard Business Review
by Scott D. Anthony, Matt Eyring, and Lib Gibson
This article offers additional ideas for developing "Big I" products while minimizing their risk. First, pick your playing field--markets where great opportunities are hiding and where you can play to your strengths. (Clues that innovations are needed include customers using existing products in unusual ways.) Then identify and meet the criteria your product must meet to succeed. For example, Intuit noticed small business owners using its personal finance software package for business accounting because they liked its simplicity. The company optimized the program for these customers (preserving its simplicity), branded it QuickBooks--and quickly dominated the product category.
Harvard Business Review
by Stefan Thomke
Companies often steer away from major innovation because they're costly. Thomke presents a process for slashing the cost and time of innovation and for testing more product ideas--increasing your number of breakthroughs. The key: early, inexpensive experimentation with ideas through computer simulations and rapid prototyping. Using this process, you expose important gaps in expertise and knowledge, eliminate unfavorable options, and focus on more promising alternatives. Solving problems early in the development of an idea is less expensive than doing so in later stages. It also keeps you current with changing customer preferences--and it gets you to market faster.