Mapping the Innovation Gap

Once you have a systematic and routine way to innovate, you are confronted with a new problem – how to decide how much innovation is enough.  For many, this is an odd question.  If innovation is essential for survival and growth, most people would want all the innovation they can get.  But that is oversimplifying.  Too much innovation can overload the system, confuse the organization, and lead to ideation fatigue.  So how much is enough?

Here is a useful analysis that can tell you how many ideas are needed to reach your specific growth targets called “Mapping the Innovation Gap.” The steps are:

1. Determine your revenue goals in each year over a specific time horizon. Base this on your firm’s strategic planning time horizon (usually 3 to 10 years depending on the industry).  Use the actual revenue targets from your company’s business plan.
2. Break these annual revenue targets down over a mix of products, new and existing, in each year. Some firms call this a revenue cascade or revenue waterfall.  It shows for each year how much of the revenue comes from existing products and how much comes from new products.
3. Estimate your Innovation Yield (number of new ideas needed to produce one new product). This varies by industry and by company depending on factors such as level of investment, core competencies, and access to technology.  Various think tanks and consultancies have estimates such as the curve pictured above.
4. Estimate your typical idea-to-launch Lead Time (how much time it takes to develop and launch a product once it is conceived). As with the Innovation Yield, this will vary. Take a look at past product development experience and determine an average time (in years).
5. Plot the number of new ideas needed in each year to produce the necessary new products in subsequent years. Take the number of new products needed in a specific year and divide it by the Innovation Yield.  Then plot this number back in time by the amount of Lead Time to develop ideas.

What you end up with is the number of new ideas that need to be generated each year to have a realistic chance of achieving future revenue growth targets.  It can be a sobering number depending on how aggressive your targets are.  With this number, a general manager can then task the team to “schedule” innovation, and then hold them accountable for generating the necessary number of ideas.

The bottom line:  To grow, companies need a systematic innovation method, and it needs to be applied systematically.