Get the balance right! • 3
Before diving into the intricacies of innovation portfolios, we need to expand the scope of innovation beyond the unimaginative, product-centric definitions of innovation that merely pay lip service to services. Let’s do this by unpacking three tensions in service innovation. The third one is covered below.
Tension 3: Innovation for the near future vs. innovation for the distant future
Service providers need to get the balance right between investing in innovation for the near future, the intermediate future, and distant future. This is ultimately about leaders and employees making sense of weak signals, placing strategic bets, and actively shaping the future they want to happen.
McKinsey’s influential framework ‘Three Horizons of Growth’ (Baghai et al., 2000) is based on the assumption that it might take years for an organization to build new and profitable businesses to displace the core ones. Horizon 1 encompasses the businesses that are at the heart of the organization; the management challenge is shore up competitive positions and extract as much value as possible before the inevitable decline and death. Horizon 2 comprises fast-moving, entrepreneurial ventures (‘emerging stars’) that are expected to complement or replace current core businesses. Horizon 3 contains strategic bets or options on future opportunities (‘the seeds of tomorrow’s businesses’) based on research projects, test-market pilots, minority stakes, alliances, etc. (i.e., real investments in the future as opposed to ideas on post-it notes). Each horizon requires different focus, management, tools, and goals. The organization should allocate its R&D and innovation budgets across all three horizons.
McKinsey’s Three Horizons of Growth and similar time-based frameworks are arguably based on the notion of diminishing returns of current technologies and the performance-improving potential of new and disruptive technologies (for more information about technology S-curves and the timings of technology transitions, see, e.g., Foster, 1988).
However, critics argue that the three horizons are no longer bound by time, and that Horizon 3 initiatives can in fact be delivered as quickly as Horizon 1 and 2 projects. According to Steve Blank (2019), “In fact, it’s the speed of deployment of Horizon 3 products, strategies, and capabilities that are a devastating upset to the status quo.” Airbnb, Uber, and Tesla are all examples of Horizon 3 disruptions based on existing technologies and unique business models, deployed and scaled in short periods of time (Blank, 2019).
A potentially more powerful way of thinking about time and innovation is through futures studies (also called strategic foresight or futures thinking), which provide the mindset, process, methods, and tools required to reflect upon the future in a structured, open, and collaborative way (see, e.g., Voros, 2001).
Voros (2001) proposes three fundamental premises or laws of futures studies. (1) The future is not predetermined; we should therefore consider many potential alternative futures. (2) The future is not predictable; we are therefore able and forced to make choices among many potential alternative futures. (3) Future outcomes can be influenced by our choices (and inactions) in the present.
Alternative futures can be classified in four ways: possible futures (what may happen), plausible futures (what could happen), probable futures (what will likely happen), and preferable futures (what we want to happen). The interrelationships between these four types of futures can be visualized using the Futures Cone. (Voros, 2001)
The creation of scenarios is one means of generating forward views, but, according to Voros (2001), “[it] should come at the end of a careful and detailed process of wide information gathering, careful analysis, and critical interpretation.” An alternative view is that we should move away from carefully crafted and well-written scenario narratives to immersion and interaction in participatory scenario workshops (Hines & Bishop, 2015).
In my next blog post, I will explore alternative ways to visualize the innovation portfolio of a service provider.
References
Baghai, M., Coley, S. & White, D. (2000). The alchemy of growth: Practical insights for building the enduring enterprise. Basic Books.
Blank, S. (2019, February 1). McKinsey’s Three Horizons Model defined innovation for years. Here’s why it no longer applies. Harvard Business Review.
Foster, R.N. (1988). Timing technological transitions. In: Tushman, M.L. & Moore, W.L. (Eds.), Readings in the management of innovation (2nd ed.). Harper Business.
Hines, A. & Bishop, P. (2015). Thinking about the future. Guidelines for strategic foresight (2nd ed.). Hinesight.
Voros, J. (2001, December). A primer on futures studies, foresight, and the use of scenarios. Prospect, Foresight Bulletin, 6. Swinburne University of Technology.
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