MyTechnologyCompany.com

I wanted to highlight the imposing math of innovation. Companies who experience great success often fool themselves into believing that they will grow like that forever. But as your revenue gets larger the absolute value of that 15% growth rate becomes much larger. In the big leagues, innovation is big work. Let me demonstrate in this simple example.

Preface: By innovation I am talking about a truly new product or the expansion of an existing product into a new channel or geography - not a product extension (that's organic growth). I will just use revenue for the goals for the sake of simplicity, but you could do this exercise for target profits.

1. Innovation Revenue Needs

• Current Company Revenues: $ 1 Billion 
• Organic Growth Rate: 5%
• Target Growth Rate: 15%

 This implies that this year the company must find 10% growth ($100MM) through other channels like innovation.

2. No. of Launches Required

• Avg. Opportunity Market Size: $50MM
• A successful launch will achieve a 50% market share
•  Probability of Launch success: 45% 

Therefore, this implies that company will need 100/(50x.5x.45) = 9 launches! They must launch 9 innovation expansions this year! Sounds easy? We are only getting started.

3. No. of Development Projects Started

• Probability Project Passes First Stage Gate: 50% 
• Probability Project Passes Second Stage Gate: 60%
• Probability Project Passes Third Stage Gate: 80% 

Just because you need nine innovation launches doesn't mean you only need to start development on 9 projects. Remember by definition you are going into some form of new territory here. Projects fail. You will need to rigorously verify assumptions if you want to keep Probability of Launch Success as high as 45%! This means applying a stage-gate process where you will kill  projects that do not meet your hurdle thresholds. The above assumptions can vary for many organizations, but the point is you will need to start development on more projects than you need to launch if you want to maintain that high growth rate. In this case it is 9/(.5x.6x.8) = 37.5 projects. So company will need to innitiate research and development on at least 38 projects to meet their goals.

4. No. of Concepts to Be Evaluated

• Probability of a Concept Being Approved: 70% 

It doesn't stop at projects either. Your best ideas must go through some sore of filter to identify the ones with the most potential. In this case, company is easy on the concept evaluation but it still requires 38/.7 = 52. That means company must generate 52 great ideas to expect to find 38 projects that will lead to 9 launches!

5. No. of Ideas Required

• Probability an Idea has Adequate Potential: 25% 

It all starts at the ideas. No company will continously grow without a system of identifying good ideas. In this case, company will need to generate 52/.25 = 208 ideas in order to expect to deliver its $100MM in innovation growth!

How does your company do in each of these phases. I find most companies underestimate the work it takes to deliver the growth it wants and suddenly finds itself underperforming. I recognize that many of these assumptions can be played with, but I encourage you to do the math for your organization an tell us what your numbers are!