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1
@thinkerings
Golden Ratio for
Innovation
James Alexander
Mentor
1
@thinkerings
70 20 10 rule of innovation
2
@thinkerings@thinkerings2
a little about me
• Strategy and delivery executive at
IBM iX
• Product management executive a...
3
@thinkerings
history of 70-20-10
Google’s golden rule for managing innovation
“The test that I apply – and we do this ev...
4
@thinkerings
3 kinds of
innovation
5
@thinkerings
6
@thinkerings
7
@thinkerings
8
@thinkerings
HBR research backs it up
Bansi Nagji and Geoff Tuff
publish “Managing Your
Innovation Portfolio” in HBR in
...
9
@thinkerings
finding no. 1
Companies that allocated about 70% of their innovation activity to
core initiatives, 20% to a...
10
@thinkerings
finding no. 2
The return ratio is roughly the inverse: Core innovation efforts
typically contribute 10% of...
11
@thinkerings
Is There a Golden Ratio?
Analysis reveals that this allocation of resources
correlates with meaningfully h...
12
@thinkerings
why do investments in transformational innovation have
higher returns long term?
• Compete in existing mar...
13
@thinkerings
13.5 13.4
10.6 10.4
10 9.9
9.1
8.2 8
7.5
7.2 7
6.7 6.6 6.4 6.3 6.3 6.2 6.1 5.9
2014 R&D Spend ($Bn)
2014 P...
14
@thinkerings
Top 20 Spenders
9%
21 - 1000 Spenders
27%
1001-2000 Spenders
3%
Everyone Else
61%
$165.3 B
$481.7 B
$48.5 ...
15
@thinkerings
4.5
8
6.6
13.4
0.2
1.7
4.8
10.4
6.2
2
Apple Google Amazon Samsung Tesla Motors 3M General Electric Microso...
16
@thinkerings
pioneer-migrator-settler map
create a balanced portfolio; pioneers will be imitated
Settlers are businesse...
17
@thinkerings
pioneer-migrator-settler map
create a balanced portfolio; pioneers will be imitated
Settlers are businesse...
18
@thinkerings
succeeding with 70/20/10
• Talent
• Core, adjacent and transformational innovation require different skill...
19
@thinkerings
wrap up
• Companies that invest 70% of resources on core innovations, 20%
on adjacent innovations and 10% ...
20
@thinkerings
sources & resources
• Identify Blue Oceans by Mapping Your Product Portfolio
• https://hbr.org/2015/02/ide...
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Google’s 70/20/10 Rule for Driving Product Innovation

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Slides James Alexander recently used in his discussion w/ mentees of The Product Mentor.

The Product Mentor is a program designed to pair Product Mentors and Mentees from around the World, across all industries, from start-up to enterprise, guided by the fundamental goals…Better Decisions. Better Products. Better Product People.

Throughout the program, each mentor leads a conversation in an area of their expertise that is live streamed and available to both mentee and the broader product community.

http://TheProductMentor.com

Veröffentlicht in: Business
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Google’s 70/20/10 Rule for Driving Product Innovation

  1. 1. 1 @thinkerings Golden Ratio for Innovation James Alexander Mentor 1 @thinkerings 70 20 10 rule of innovation
  2. 2. 2 @thinkerings@thinkerings2 a little about me • Strategy and delivery executive at IBM iX • Product management executive at Adobe for 7 years • Three start-ups…two exits • 12 patents
  3. 3. 3 @thinkerings history of 70-20-10 Google’s golden rule for managing innovation “The test that I apply – and we do this every day, 70/20/10 – is to ask how a feature will extend the core, the adjacent, or the innovative stuff to fulfill our mission. That's the sort of drug that we all take, and it works really quite well.” Google CEO Eric Schmidt December 2005 Business 2.0 Magazine
  4. 4. 4 @thinkerings 3 kinds of innovation
  5. 5. 5 @thinkerings
  6. 6. 6 @thinkerings
  7. 7. 7 @thinkerings
  8. 8. 8 @thinkerings HBR research backs it up Bansi Nagji and Geoff Tuff publish “Managing Your Innovation Portfolio” in HBR in 2012 looks at industrial, tech & CPG
  9. 9. 9 @thinkerings finding no. 1 Companies that allocated about 70% of their innovation activity to core initiatives, 20% to adjacent ones, and 10% to transformational ones outperformed their peers, typically realizing a P/E premium of 10% to 20%. Managing Your Innovation Portfolio Harvard Business Review https://hbr.org/2012/05/managing-your-innovation-portfolio
  10. 10. 10 @thinkerings finding no. 2 The return ratio is roughly the inverse: Core innovation efforts typically contribute 10% of the long-term, cumulative return on innovation investment; adjacent initiatives contribute 20%; and transformational efforts contribute 70%. Managing Your Innovation Portfolio Harvard Business Review https://hbr.org/2012/05/managing-your-innovation-portfolio
  11. 11. 11 @thinkerings Is There a Golden Ratio? Analysis reveals that this allocation of resources correlates with meaningfully higher share price performance. How Innovation Pays the Bills Among high performers that invest in all three levels of innovation, HBR reports the distribution of total returns is inverse the allocation of resources. Source:ManagingYourInnovationPortfolio-HBR
  12. 12. 12 @thinkerings why do investments in transformational innovation have higher returns long term? • Compete in existing market space • Beat the competition • Exploit existing demand • Make the value/cost trade-off • Crowded space lowers profits and growth as products become commodities • Create uncontested market space • Make the competition irrelevant • Create and capture new demand • Break the value/cost trade-off • Growth is profitable and rapid core market realities transformational possibilities
  13. 13. 13 @thinkerings 13.5 13.4 10.6 10.4 10 9.9 9.1 8.2 8 7.5 7.2 7 6.7 6.6 6.4 6.3 6.3 6.2 6.1 5.9 2014 R&D Spend ($Bn) 2014 PWC Global Innovation 1000 Study innovation is a big business… top 20 R&D spenders invested $165.3 billion in 2014
  14. 14. 14 @thinkerings Top 20 Spenders 9% 21 - 1000 Spenders 27% 1001-2000 Spenders 3% Everyone Else 61% $165.3 B $481.7 B $48.5 B $1,083.7 B The top 1,000 R&D spenders have 40% share of innovation spend. The next 1,000 companies have just 3% share of spend. …companies invest on average 3.5% of revenue… top 1,000 R&D spenders invested $657 billion in 2014
  15. 15. 15 @thinkerings 4.5 8 6.6 13.4 0.2 1.7 4.8 10.4 6.2 2 Apple Google Amazon Samsung Tesla Motors 3M General Electric Microsoft IBM Procter & Gamble Top 10 Most Innovative Companies ($Bn) 2014 PWC Global Innovation 1000 Study 1 2 3 4 5 6 7 8 9 10 …but money can’t buy love. only 5 top spenders were ranked most innovative…the top 10 most innovative spent 43% less then the top 10 spenders
  16. 16. 16 @thinkerings pioneer-migrator-settler map create a balanced portfolio; pioneers will be imitated Settlers are businesses offering me-too value; migrators are businesses with value improvements over competitors'; and pioneers are businesses that offer unprecedented value—blue ocean offerings.
  17. 17. 17 @thinkerings pioneer-migrator-settler map create a balanced portfolio; pioneers will be imitated Settlers are businesses offering me-too value; migrators are businesses with value improvements over competitors'; and pioneers are businesses that offer unprecedented value—blue ocean offerings.
  18. 18. 18 @thinkerings succeeding with 70/20/10 • Talent • Core, adjacent and transformational innovation require different skillsets • Integration • Core innovation might do well to be with the main business where transformational innovation teams need distance from the core business • Funding • Core and adjacent innovation costs are incremental whereas transformational innovation may require significant, sustained investment • Pipeline management • The criteria for moving projects through the innovation process must differ. Transformational innovation is hard to manage in the linear, stage-gate model used for core and adjacent innovation because it’s difficult to know what the right approach is for a market that does not yet exist. • Metrics • The metrics used to measure success for core and adjacent innovations may make transformational innovations look like failures too soon. Metrics need to match the types of innovation they’re supposed to measure. organize and manage the innovation system
  19. 19. 19 @thinkerings wrap up • Companies that invest 70% of resources on core innovations, 20% on adjacent innovations and 10% on transformational innovations typically outperform peers and have a higher P/E • Companies spend $1 trillion annually on innovation • Innovating thoughtfully saves cost and amplifies impact • Many existing industries are crowded and commoditized • Transformational innovation eliminates competitors by identifying entirely new markets where no competitors exist • Successful product managers will build a balanced portfolio across core, adjacent and transformational opportunities and ensure their organizations are tuned to the innovation system
  20. 20. 20 @thinkerings sources & resources • Identify Blue Oceans by Mapping Your Product Portfolio • https://hbr.org/2015/02/identify-blue-oceans-by-mapping-your-product- portfolio • PWC 2015 Global Innovation Study • http://www.strategyand.pwc.com/innovation1000 • Managing Your Innovation Portfolio • https://hbr.org/2012/05/managing-your-innovation-portfolio

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