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2019 is like no other year the Indian industry has faced. Multiple sectors such as infrastructure, power, construction, banking, automotive, etc are in serious crisis. Growth is down to 4%. Companies are fighting for growth through market share gain as the industry growth rates are tapering. Disruption is rampant in many sectors. Sectors like IT are seeing job losses at senior levels as they are seeing the disruption of their business. Can businesses learn from the past?
The global recession of 2008 led to companies in the developed world look at transforming themselves. They went on an efficiency drive, relooked at the operating models, implemented digital transformations and many have come out stronger. The bulk of Indian organizations, on the other hand, didn't see any significant impact. The market was still growing, the telecom industry was seeing a boom, there were huge investments in infrastructure (power, coal, etc.), the IT industry was still growing at a healthy rate, construction was seeing frenzied growth and overall consumption was healthy. Businesses were still focused on growth in core business and they were expanding into real estate, infrastructure and some even into IT. Unfortunately, what they did then isn’t going to help them now.
It is time for Indian organizations to figure out how they can comprehensively innovate their business.
In this article and the following 3 parts, I will be exploring the approach that organizations could choose based on innovation. Bansi Nagji and Geoff Tuff (Managing your innovation portfolio, HBR 2010) defined the innovation ambition matrix, and it provides a wonderful framework for organizations to adopt. Nagji and Tuff, recommend organizations to balance their innovation portfolio at three levels of ambition; Core innovation, Adjacent Innovation and Transformational innovation. This has similarities to the 3 Horizon model proposed by Baghai, Coley, and White (Baghai, M., Coley, S. and White, D. (2000) The alchemy of growth).
I would suggest that Indian organizations need to explore how they can innovate their business using multiple types of innovation. Keeley defined the ten types of innovation an organization can do (Keeley, L. (2013). Ten types of innovation) and I believe it provides the most comprehensive definition of “What” types of innovation an organization can adopt. These include
Configuration Innovation – These types of innovation are focused on the innermost workings of an enterprise and its business system. Configuration innovations include innovation in profit model, Network, Structure and Process/Production
Offering Innovation – These types of innovations are focused on an enterprises’ core product or service or a collection of its products and services. This includes innovation in product performance and product system
Experience Innovation – These types of innovation are focused on more customer-facing elements of an enterprise and its business system. This includes innovation in services, channel, brand and customer engagement.
You will find more details in my video here: Innovation Typology - Ten Types of Innovation.
By linking the ten types of innovation to the innovation ambition matrix, you can come up with an innovation strategy for an organization that strikes an effective balance between the near term and the future.
Innovate the Core business: This is about changing the known for the organization. The focus continues to be on your core offering, by adding new quality, utility or other performance elements. At the same time, a significant opportunity exists to create differentiation and growth of the core business by innovating the business configuration (profit model, network, structure, process/production) and/or the customer experience (services, channel, brand and engagement model)
Adjacent Innovation: Change the boundaries of the business/market. The focus here is to reframe the offering and market and bring in new customers and users. This requires the organization to look beyond product & product platforms and include innovations in the customer experience to bring in new markets and customers into play. This may be through innovations in services, customer engagement, channel, and brand innovations. Further, the organization should protect themselves from others duplicating the offer by also innovating the way they deliver the offering. This includes profit model, network of partners, structure as well as process and production innovation. Typically for adjacent innovation to succeed, organizations must adopt 3 to 4 types of innovations.
Transformational or Radical Innovation: Change the game. This type of innovation is about altering the industry and requires a high-risk appetite. This type of innovation erases market boundaries and brings both new competencies as well as customers into play and require many a type of innovation. In these cases, organizations have to necessarily innovate the offering, the customer experience, and the configuration.
Nagji and Tuff (Managing your innovation portfolio, HBR 2010), found that organizations that allocated innovation activity in the ratio of 70:20:10 to core, adjacent and transformational efforts outperformed their peers, typically realizing a P/E premium of 10% to 20%. They also found that cumulative long-term return on innovation investment tends to be 10% from core innovation efforts, 20% from adjacent initiatives and 70% from transformational efforts.
In the subsequent articles, I will explore how an organization can approach each of the core, adjacent and radical innovation.
Hope you found these insights useful. Let me know if you like this blog and leave your comments on the subject. Write to me directly krishnan@thinkhorizonconsulting.com or connect on LinkedIn for more discussion on the subject of innovation.
Krishnan Naganathan
Krishnan is a consultant with more than 25 years of experience. His purpose is to help India and it's entrepreneurs be global leaders in innovation