Creating an Innovation Portfolio

A Jump White PaperOctober 2011

© 2011 Jump Associates 2


Creating a Portfolio of Innovations

Steal This DeckJump Associates has collaborated with some of the world’s most admired companies to tackle issues around growth and innovation. The ideas, models, and principles that we’ve created have proved themselves to be invaluable to our clients. Now, we’ve decided to share some of those ideas with a wider audience. JumpIdeas is a white paper series designed for the innovation practitioner – the folks who actually make great things happen. We’ve created this deck to help you spark new ideas, share them with your team, and present them within your company. You should feel free to repurpose anything in this deck for your own benefit in accordance with the Creative Commons License below.

Jump Associates LLC101 South Ellsworth, Suite 600San Mateo, CA 94401650 373 7200

915 Broadway, 15th FloorNew York, NY 10001212 392 5000

[email protected]: @JumpAssociates

© 2011 Jump AssociatesJumpIdeas by Jump Associates is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

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Sustaining, Breakout, Disruptive innovations.Whether the category is cars or cookies or computers, companies typically struggle with how to effectively and reliably create innovative products and services. Often, they discover that the greatest challenges aren’t in coming up with big ideas, but in the organizational and management issues that these new ideas present.

Clayton Christensen at Harvard Business School has done some phenomenal work on disruptive innovations, and how they differ from sustaining offerings. At Jump, we have built on this foundation, developing a framework to help folks figure out how to bring new ideas to market, create more realistic testing and growth expectations, and better manage their business’s innovation pipeline. This requires identifying what types of innovations you have, what you need, and how to nurture and grow them all.

There are 3 types of innovations.Sustaining products and services are the kinds of innovations companies often need to develop just to stay in the game. These incremental innovations can be thought of as variations on a theme. For example, in the category of household cleansers, a sustaining

Not all innovations are created equal.

innovation might involve making the cleaning agent ten percent stronger, or in pairing it with a new scent.

Breakout offerings are those that significantly up the level of play within an existing category. The sleek Motorola RAZR, with its boundary-pushing design, was a runaway success for Motorola. Seeing it, customers couldn’t help but want it – over time making it the best-selling line of clamshell phones ever. That said, it was still a clamshell phone, sold and used in much the same way as previous cell phones.

Disruptive innovations are the sort of big ideas that many of us have in mind when we think about an innovation. They are called disruptive because they disrupt the current market behavior, rendering existing solutions obsolete, transforming value propositions, and bringing previously marginal customers and companies into the center of attention.

Note that in a given category, disruptive innovations often come first, and are then followed by a series of sustaining innovations, with sporadic breakout hits interspersed. Eventually, the market is disrupted once again, starting the cycle anew.

Expect different market performance.Because disruptive innovations have the potential to yield the greatest benefit to a company, firms often make the mistake of thinking that disruptiveproducts should lead to immediate market success. Even worse, some firms unwittingly begin to classify their products purely on the basis of their immediate market forecast, calling likely big hits “disruptive.” In fact, the opposite is true. Because disruptive offerings differ significantly from the status quo, they often test poorly and require time to gain market acceptance. Indeed, one should actually be suspicious of so-called disruptive innovations that show immediate widespread success.

“Firms often make the mistake of thinking that disruptive

products should lead to immediate market success.”


The typical profile of revenue performance is:Sustaining: Immediately moderate, then tapering off.

Breakout: Rapidly strong, then quickly dropping to a lower level.

Disruptive: Longer gestation period leading to exponential growth.

Managing different forms of innovation.Too often, work on a disruptive innovation gets bogged down within a system that is optimized for the creation of sustaining offerings. The success of the project comes to depend less on the quality of the innovation and more on the quality of the deals the team can cut. Such projects demonstrate the importance of establishing different metrics and procedures in advance, so teams know the goalposts they’re aiming for and can tailor their approach accordingly.

For disruptive endeavors, success typically requires different development processes, different approval and funding mechanisms, and different performance expectations.

Portfolio implications.By tailoring their product development processes to different types of innovations, a firm has the opportunity to generate immediate new product revenues while still nurturing future opportunities. To support that goal, companies should classify each of its new product concepts within the framework of sustaining, breakout, or disruptive. This allows a company to manage risk and reward at a portfolio level and maintain a healthy balance of all three, so that they are

Categorizing innovations using this framework is an effective way to help ensure that target outcomes are in line with early expectations, and that any firm seeking to innovate has an effective system for doing so.

Sustaining

Maxwell House Dark

Nature Valley Trail Mix

Crest Gel

Sony Liv

Angled brooms

Longboard skateboards

Disruptive

Starbucks

PowerBar

Crest Toothpaste

Napster

Vacuum cleaner

Segway transports

meeting the needs of today and tomorrow. In other cases, companies are able to focus their innovation efforts by clearly stating that they are prioritizing development of breakout products, and consciously minimizing exploration of disruptive opportunities.

Ensure your portfolio matches desired goals.

Breakout

GF Intl. Coffees

Cliff Luna Bar

Colgate Total

iPod

Swiffer

Razor scooter



Different innovations yield different results.

Revenue Performance Moderate initial success, but return tends to taper off as newness fades.

Revenue Performance Initial spike in revenue, but returns decrease as competitors enter market.

Revenue Performance May take a while to succeed, and only with early adopters until value realized.

Sustaining Breakout Disruptive

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DevelopmentMinimal research required, but some feature redesign may be required.

DevelopmentMarket and trend research needed and unique design can spur trial.

DevelopmentRequires proprietary insight into target market and significant design resources.

MarketingTypically an extension of current advertising.

Marketing Typically aimed at spurring trial, and visual media is more effective.

Marketing Demonstrations and other non-traditional formats needed to spur trial.

Roll-OutSimilar revenue curve to existing products makes business model extension straightforward.

Roll-OutFast peak and decay requires careful market-watching to tune production accordingly.

Roll-OutSlower ramp-up requires a phased roll-out from niche channels to mass channels.

Consumer BehaviorRequires no change in behavior.

Consumer BehaviorAny change in behavior is minor and typically maps to an existing one.

Consumer BehaviorCan require a significant change in thinking and behavior.

Consumer NeedPeople are aware of their need.

Consumer NeedPeople may not articulate their need but will often agree when it’s pointed out.

Consumer NeedPeople may not understand the need and not even accept it when pointed out.

UnderstandabilityPeople typically require only a brief description to understand it.

UnderstandabilityPeople may require a picture or model to understand.

UnderstandabilityPeople may need a real, simulated experience to understand it.

How do you know which one is which?


Sustaining Breakout Disruptive

People knew they wanted new flavors

No change in behavior needed to run the Sony Liv

People quickly got the idea of a darker roast

If explained, a bar for women was understood

Once people saw it, they got it

International Coffees elevated the experience

It was a new class of food, requiring new behaviors

Significant change in how music is obtained, shared

No one thought they would pay so much for coffee

Try this on your current innovation portfolio.

1

List Your PortfolioWrite the name of 10 representative products and services currently in your portfolio.

• Will it require people to change their behavior?Sustaining : No changeBreakout: Some changeDisruptive: Significant change

Score Each OfferingFor each offering, circle the appropriate letter, using the questions below as a guide:

• How easily will people understand the solution?Sustaining: Need to hear itBreakout: Need to see itDisruptive: Need to experience it

Totals

Product/Service Name Sustaining1

2


3 Capture Your TotalsAdd up the number of circles you have in each column and go to the next page to find out what this means.

Breakout Disruptive

• Are people aware of the need yet?Sustaining: YesBreakout: SomewhatDisruptive: No

2

3

4

5

6

7

8

9

10

S B D

S B D

S B D

S B D

S B D

S B D

S B D

S B D

S B D

S B D



How did you do?

How Your Portfolio Skews

Sustaining

Focused on the short-term.

Breakout

On the breakout treadmill.

Disruptive

Big bets on the future.

The column that ended up with the highest number on the previous page indicates which way your innovation portfolio is skewing. Based on this there are certain things you should consider:

Sustaining PortfolioPros: Reliable revenue for the short term.

Cons: Ripe for disruption.

Actions: Look at your metrics – you might be killing big ideas without knowing it. Consider investing resources to explore larger innovations.

Breakout PortfolioPros: Highly visible wins, when successful.

Cons: Popularity can fade quickly, requiring repeated breakouts to stay ahead.

Actions: Don’t confuse breakout innovation for disruptive innovation. If you’re going to play the breakout game, be prepared to invest in developing them repeatedly. Otherwise, work to diversify your portfolio.

Disruptive PortfolioPros: Ability to shape the market and call the shots with the potential for a long-term, sustainable advantage. Done right, it’ll be a new growth driver for years.

Cons: Possibility of cannibalizing your existing offerings’ market share. Can be hard to predict the full potential, and some efforts will fail.

Actions: Look for opportunities to test big innovations with smaller, sustaining and breakout offerings earlier on.


Jump is an innovation strategy firm. We help companies create new businesses and reinvent existing ones. We work with visionary business leaders to define profitable new growth platforms, as well as build the systems, processes, and metrics to actually make significant change a reality. At the end of the day, we help tackle big, ambiguous growth challenges – the kinds of things you don’t know how to face, but can’t afford not to.

© 2011 Jump Associates LLC101 South Ellsworth, Suite 600San Mateo, CA 94401650 373 7200

915 Broadway, 15th FloorNew York, NY 10010212 392 5000

[email protected]: @JumpAssociates

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Creating an Innovation Portfolio