How to Cut Out Unnecessary Innovation
When times get tough, one of the first things we do is think about what we can do without, like cutting latte consumption from five a week to two. Similarly, companies say no to some things to conserve resources and ensure remaining resources are focused on the right things. Companies looking to shut down some innovation efforts have to evaluate their portfolio of what's in the process. Prudently pruning this portfolio will help to ensure that resources flow to the right ones. Here's a look at two typical approaches executives often take—and a third that might work better.
Approach 1: First-Year Revenues
Some companies prioritize projects based on their first-year revenues. This helps executives answer the question: "Where are my biggest ideas?" Obviously, first-year revenues are important. But they're not all that matters. A good way to reinforce this notion is to ask a group of executives which of the following innovations they would prefer:
Innovation A came out of the gates like a bullet, racking up first-year sales of more than $200 million. A clear value proposition, clever positioning, and a strong distribution network led to market success.
Innovation B had first-year revenues of a mere $220,000. The innovation had cool technology, but the paying customer and the business model were very unclear.
It's obvious, right? Innovation A is the winning proposition. But let's reveal more information. Innovation A was Vanilla Coke. It was a line extension that largely cannibalized sales of Coke's other products. Three years after launch, fizzling demand led Coke to pull the product from the market.
Innovation B was Google. In Google's early days, it had a technology and not much else. After a couple of iterations, though, it came up with its advertising-based business model, setting the stage for one of the greatest economic success stories of current times.
Vanilla Cokes are great, but Googles are once in a lifetime. And the trick is that many great growth businesses start small and take a few years before they start exponential growth.