Business transformation and growth start at the leadership level, not at the product innovation level.
There are three distinct levels of decision making in the Corporate Innovation – Product, Portfolio and Business Transformation. They have different objectives, different risks, and different time frames, and can not be handled by a single innovation function within the organization.
Most companies are good at product and portfolio innovation but struggle at reinventing themselves into a new business. When a company fails to scale a truly innovative product it is usually not a product but a strategic failure. In a sense, the company is half-heartedly trying to get into a new business. First, they are not sure whether they actually want to be a player there. And second, they don’t have control over the necessary assets to protect their position in the new ecosystem.
The other strategic failure shows in the case of a disruption. An alternative solution is taking pieces of the business but the companies invest in product optimization and process improvements. Expecting that the product innovation will save their future.
The Strategic Goals
The three layers are in a way hierarchical, as the decisions are taken at different levels in the organization, but they serve different objectives for the company.
The goals at the Product layer are to satisfy the existing customers and to improve the production and operational efficiency. This is done with full focus on the customer and in short validation cycles.
The goals at the Portfolio layer are to build up on top of what is already there – either adding a new customer segment and keeping the existing business model or changing the business model and serving the same customers. Here the focus is on understanding new customers and improve the utilization of the backend.
At the Strategy layer, the goal is to build a whole new business for the company – new customers, new business models, and a new company sometimes. You can’t use the technics from the lower layers here – you are looking to the future, so there is no data from 5 years ahead. There is no quick validation from the customers, no “start small” or “fail fast”, and definitely no efficiency metrics to improve. There are only assumptions, projections, and hypotheses. And that is great!
Uncertainty brings opportunities
Where will the company bring the most value in 5 years? What will your competitors be afraid to do? How can you get the critical assets for the win now? How will you sustain your win? What would be the driving forces of the change? How many bets should you or could you make?
These are the questions at the Transformation level, and they can only be answered at the top of the company. They can not be answered at the product of portfolio levels, they require bold and inspired leadership, comfortable to deal with uncertainty. Even if answering them today might scare your board members and you, they are the questions that will matter for the long run.
P.S.: These layers can be used as a vertical axis to the three horizons model of McKinsey.
The improvement activities in Horizon 1 are managed by the multiple Product teams. The extensions in Horizon 2 are managed at the Portfolio level, and the Business Transformation is led at the Transformation level.