By leveraging the Alchemy of Growth's Three Horizons Model, companies of any size can begin driving innovation throughout their organization.
When we think of innovation, it is tough not to think of hybrid cars, iPads, and the Internet. As a result, most companies aspire to innovate in a similar revolutionary manner, but they do so at their own peril. The fact is that innovation is more evolutionary than revolutionary, and the more you are able to integrate this mindset into your business, the more innovative your firm will become.
In 1999, Merhdad Baghai, Stephen Coley, and David White introduced the Three Horizons Model to innovation in The Alchemy of Growth, which provides a simple yet insightful view on innovation. Subsequently, Google adopted this model as one of its key principles to driving innovation in its organization.
The good news: You can follow Google's blueprint. Approach innovation within these three horizons and you will discover not only that your firm may be more innovative than you think, but also that you can better allocate your resources to drive future growth.
This might surprise some, but Google spends 70% of its time and resources innovating in this category, and with good reason. Innovations in markets you currently serve and in technologies you currently use are key to defending your competitive position. These innovations help you stay competitive and improve operational efficiency.
While these innovations are the easiest to identify and implement, they are often the most neglected by small and mid-sized businesses. Thankfully, this trend is easily corrected. Leverage your employees and those closest to your customers, products, and operations to identify Horizon One innovations.
In Horizon Two, we expand the scope of innovation to existing markets and technologies that you might not serve or use today, but are adjacent to your current business. In this horizon, you are seeking to drive growth by leveraging your current expertise in adjacent markets.
Google is known for allowing its employees to spend 20% of their time thinking and working on personal projects. This is because they believe their employees are best positioned to think strategically about how to expand into adjacencies.
Similarly, the key for your business is allocating a portion of your most strategic resources' time toward next-generation innovation.
Horizon Three: New Markets, New Technologies
Horizon Three is what most businesses envision when they think of innovation, but under the Google iteration of the Three Horizons Model, 90% of the innovation resources are allocated elsewhere, which leaves 10% for the final horizon. The main reason for this is the difficulty in identifying a new market or technology. Instead, firms should focus several small bets on potentially emerging technologies, as a means of reaping benefits from and protecting against disruptive innovations.
Growth is an objective of every small business, and many try to achieve growth by establishing and maintaining an innovative atmosphere. Structuring innovation in your firm according to the Three Horizon Model will help you achieve the highest return from the resources you dedicate to innovation.
KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark