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Valuing Radical Innovation

Mon, 07/02/2012 - 11:15 -- KevinMcFarthing

I’ve been involved in a lot of discussions over the last twelve months related to the creation of new business through radical or breakthrough innovation.  Some of them have been on collaborative work with the innovative market research agency, BrainJuicer.  The essence of the challenge can be summarized as: why can’t large companies create new businesses?  Many of the potential reasons were described well by John Kearon, the Chief Juicer, in an excellent article

More recently the topic of several interactions was how different companies approach the development of new business.  This invariably involves innovation, through implementing new products, services or business models.  One key aspect intrigued me.  A few notable examples, who I can’t name but you would certainly recognize, set targets for the size of new business they want to create.  They reject opportunities that fall below this threshold.  For the sake of argument, let’s assume that our company, Fictional Products Inc, have a turnover of $1bn and set a new business threshold of $50m, 5% of turnover.

On the face of it and using traditional management logic of prioritization of resources against the biggest potential returns, this makes sense.  Why would you spend time on small projects?  But this makes me feel uneasy because of this fundamental puzzle – if Fictional Products can accurately value a business at over $50m; they will be dealing with tangible facts and an opportunity that is pretty close to what they already have.

Early stage opportunities that can either disrupt an existing market or create a new one are mired in uncertainty.  By their very nature they are unlikely to use the standard business model for that category.  Until users get their hands on it, the full potential of the product is difficult to estimate.  The traditional route to market, the ways to communicate and market the product may all be irrelevant.

That’s why really radical innovation should not be quantified in the same way as existing incremental opportunities.  Instead other ways to map out the future should be taken.  For example, customers should get prototypes or as close-to-finished-product as soon as possible.  They should be encouraged to share their experience by word of mouth and through social media, building buzz with other early adopters and laying the foundations for a hopefully successful business in the future.

If you try to quantify too quickly, you may kill too many future successes before they can start to prove their worth.  It’s culturally counter intuitive to many businesses, relying as much on belief as data, but paradoxically the step-by-step approach enables you to obtain more data.  As long as your investment and return profiles don’t get too far out of kilter, you won’t go too far wrong.  And you’ll be more likely to produce radical innovation by starting small and building fast.

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