This article was co-written with Frank Mattes.
Being among the pioneers (see e.g. here or here) in making the case that dual approaches to modern corporate innovation are mandatory for innovation impact, we have recently been delighted about two things:
First, more and more companies are appreciating our arguments as the following data suggest (sources can be provided upon request):
Second, two concepts that we’ve been advocating for quite some time, are being increasingly used by innovation thinkers and corporate practitioners:
Organizational Ambidexterity: The strategic and organizational capability to pursue simultaneously explorative innovation (= search for new-to-the-company opportunities) and exploitative innovation (= harvesting innovation opportunities within the existing business model).
Three Playing Fields, The underlying taxonomy which enables a balanced portfolio of core, transformational (also often referred to as adjacent) and future business activities.
Our Three Playing Fields view goes well beyond the Three Horizons model which has gained some traction recently. Most advocates of the Three Horizons model see it from a time (-to-impact) perspective or use it to classify different innovation types.
We propose that in each of the three areas there is a different logic / operating model for managing innovation to be applied to generate business impact from innovation initiatives. The specific logic in each of these playing fields manifests e.g. in specific leadership, processes, metrics, governance and people / culture factors. The Three Playing Fields are (see figure 1):
- Optimize the Core (Optimization of existing business models and technologies)
- Reshape the Core (Transformation of existing business models and / or scaling up new business models / technologies)
- Create the New (Creation of new-to-the-company business models and Technologies)
Figure 1: Three Playing Fields of Innovation.
Three Playing Fields: The basis for modern innovation management
Our Dual Innovation approach (see figure 2) combines these two concepts in a unique way. It funnels an ambidextrous innovation strategy (consisting of a core strategy usually owned by operational business units and an explorative strategy usually owned by corporate innovation units) into implementation through the Three Playing Fields, applying the specific innovation models in each of the Playing Fields.
Figure 2: The House of Modern Dual Innovation Management.
Reshape the Core: Mastering the key challenge in modern innovation management
Companies are traditionally well-versed in Playing Field 1. They have fine-tuned phase / gate processes, masterplans, portfolio management systems etc. in place for developing extensions of the product / service portfolio within the existing business model.
Many organizations have also built up the capabilities to tackle Playing Field 3 via innovation centers, incubators / accelerators, internal venturing, intrapreneurship programs or external startup engagement.
There seems to be a broad consensus on the need for an ambidextrous set-up, i.e. for separating these two different activities. However, as our project work shows, when it comes to integration (Playing Field 2), most companies face huge problems. This is the space where two main activities need to be conducted to achieve business impact from innovation and to future-proof the existing business model:
- Validated breakthrough or even disruptive innovation concepts (Playing Field 3) need to be scaled up for achieving business impact. If a company does not master Scaling-Up there is a high chance that all the activities in Playing Field 3 will remain only innovation theater.
- In the light of Digital Transformation, adapting the established core business models (Playing Field 1) by innovating selected elements (e.g. platform strategies, x-as-a-service business models, bypassing the middle man or automatization of service processes) is mandatory. If a company does not master adaptation it risks to lose in Digital Transformation. Experience shows that the adaptation usually draws on explorative activities and capabilities.
Three models to Reshape the Core
So how can your company increase the odds for winning in Playing Field 2? It turns out that the answer to this lies in large part in designing the right interface between the innovation functions of Business Units (BUs) and Corporate Innovation.
To be more precise, there are three basic models, depending on which of these is in charge for pursuing Reshape the Core activities (see figure 3):
- Shared responsibility BU and Corporate Innovation (balanced model)
- Corporate Innovation in charge (centralized model)
- BUs are in charge (de-centralized model)
Figure 3: Organizational design options for Reshape the Core (Playing Field 2).
From our experience, the right decision for one of these models is critical for the entire organizational interplay and innovation impact. Making the right decision depends on
- Innovation strategies at BU and at Corporate level
- Corporate innovation management set-up
- Maturity of BUs in driving explorative innovation
- Innovation pace and dynamics
- Level of exposure to Digital Transformation
among other criteria.
Are you interested in learning more about modern Dual Innovation and discussing how to Reshape the Core adequately in your company? Just drop us a note – we look forward to reaching out to you!