Article Summary: Managing Your Innovation Portfolio (Bansi Nagji and Geoff Tuff)
The Harvard Business Review article Managing Your Innovation Portfolio by Bansi Nagji and Geoff Tuff introduces a practical framework for balancing different types of innovation within an organization. The authors emphasize that companies must strategically allocate resources across three types of innovation—core, adjacent, and transformational—to drive sustained growth and competitiveness. This approach is especially useful for product managers, helping them structure innovation efforts to balance immediate business needs with long-term growth opportunities.
1. The Three Types of Innovation
Nagji and Tuff categorize innovation into three distinct types based on the level of risk, potential return, and alignment with the current business:
Core Innovation: This type of innovation focuses on improving existing products and services for current customers. Core innovations typically aim to make incremental changes, such as enhancing features or optimizing production processes, to sustain the company’s competitive edge in the core market.
Adjacent Innovation: Adjacent innovation involves expanding into new areas that are closely related to the existing business. This may mean reaching new customer segments, entering new markets, or adapting current products to serve different needs. Adjacent innovations require moderate risk but can drive significant growth by tapping into slightly new markets.
Transformational Innovation: Transformational innovation focuses on creating entirely new products, services, or business models that don’t align with the company’s existing offerings. This type of innovation carries the highest risk but offers the potential for disruptive growth and long-term transformation. Transformational innovation can lead to new industries or market categories and requires bold investment.
2. The Optimal Innovation Portfolio Mix
The authors argue that companies should aim for a balanced portfolio that combines these three innovation types. An optimal mix, according to their research, is to allocate roughly 70% of resources to core innovation, 20% to adjacent innovation, and 10% to transformational innovation. This distribution allows companies to maintain stability through core innovation while exploring growth through adjacent and transformational projects.
For product managers, this means identifying how much time and resources to dedicate to sustaining improvements, versus exploring new opportunities. By following this mix, product managers can ensure that their teams deliver short-term value while keeping an eye on future growth.
3. Aligning Innovation with Strategy
Nagji and Tuff emphasize that effective innovation portfolios should align closely with the organization’s strategic objectives. Product managers need to ensure that each type of innovation advances the company’s long-term vision. Core innovation supports competitive positioning, adjacent innovation expands reach, and transformational innovation opens entirely new paths.
To implement this:
Clearly define the goals for each type of innovation and how they contribute to the overall business strategy.
Ensure alignment by regularly reviewing innovation projects with leadership and adjusting priorities based on strategic shifts.
4. Evaluating Success Across the Portfolio
Each type of innovation requires distinct metrics for success. Core innovation can be evaluated through traditional KPIs, such as profit margins and customer satisfaction. Adjacent innovation metrics may focus on market share in new segments, while transformational innovation may be evaluated based on customer adoption, scalability, or potential for disruption.
For product managers, this tailored approach to measurement ensures that each project is assessed fairly and that expectations are aligned with the nature of each innovation type.
Key Takeaways for Product Managers:
Balance the portfolio: Allocate resources across core, adjacent, and transformational innovations to drive short-term gains and long-term growth.
Align innovation with strategy: Ensure that each innovation type contributes to the overall strategic objectives of the company.
Tailor metrics to innovation type: Use distinct success metrics to fairly evaluate core, adjacent, and transformational projects.
By following Nagji and Tuff’s framework, product managers can manage innovation more strategically, creating a portfolio that maximizes both current business value and future growth potential. This balanced approach to innovation enables companies to stay competitive in today’s dynamic markets while positioning themselves for future success.