In the book Innovation Tournaments (link), Christian Terwiesch and Karl Ulrich, introduce the concept of innovation horizons. I have found their three horizons very helpful in thinking about the management of innovation.
What struck me in thinking about this chart is that developing innovations for each horizon requires different approaches and that most companies co-mingle all three types in a single innovation organization. This may explain why many organizations are not satisfied with the results of their innovation activities, as they are confusing their goals and their approaches to innovation. I believe that different, and perhaps independent, approaches are needed to create innovations for each Horizon.
Horizon 1 Innovations. These types of innovations are incremental by definition. The vast majority of innovation projects fall into this category. This is not surprising since if you ask 100 of your current customers, “How can we improve our product?” probably 90 of them will answer by saying, “Make it better, faster or cheaper.” There is nothing inherently wrong in pursuing Horizon 1 innovations, since they are exactly the types of innovation which will make your current customers most happy. They are also the most achievable ones. Companies need to consider how to best identify and implement Horizon 1 innovations.
A crowd sourcing model which solicits ideas from employees and customers through an idea management system is highly effective for Horizon 1 innovations. The people most familiar with the needs of the existing customers and deployed technologies are in the best position to identify opportunities for incremental improvements. The Toyota model of innovation operates this way. Toyota employees are encouraged to submit their improvement ideas and thousands do. Toyota claims they have implemented tens of thousands of these innovations over the past decade. Our own experience here at PwC supports this. Our idea management system (iPlace) had sourced over 2,000 ideas over the past year from our staff of which over 20% are under consideration for implementation.
Horizon 2 Innovations. According to Terwiesch and Ulrich, Horizon 2 innovations are next generation products serving existing or adjacent markets. Depending on employees and customers to define new products is probably a risky proposition. Employees and customers, in general, may not have the time or skills necessary to evaluate new technologies and determine their potential for new product development. Nor would they have access to the market research and competitive analysis which are a part of any product development process.
There are many formal and informal techniques applicable to the new product development process. Whether you use brainstorming, detailed market research, or hire an outside product development company is based on the particular situation of your firm. However, it is important to note, that in most cases, the development of new products (Horizon 2 innovations) is most effective using different techniques from Horizon 1.
Horizon 3 Innovations. These innovations are often described as “breakthrough” innovations, or discontinuities. They are not directly related to existing markets or technologies, but represent totally new products or services which are not extensions of existing ones. These are the “out of the box” types of ideas that many business leaders seek.
R&D labs have historically focused on these types of innovations. There are many successful R&D models but there are some common characteristics. They often involve both people from within a business with deep experience in the business and researchers with limited specific business experience but deep knowledge of the new technologies. Successful R&D incorporates failure as a normal event, with the expectation that not every idea or even prototype product will be successful.
Again the key point here is not what specific R&D techniques your firm chooses to apply, but that they are substantially different from the techniques of Horizon 1 or 2 innovations.
Conclusion. Companies need to recognize that they need different approaches, techniques and even management styles for each Innovation Horizon. It is not necessary to pursue all three types of innovations, but it is necessary to define which Horizon(s) you are focused on, and apply the right techniques for each Horizon.