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Nice comment in the Harvard Business Review blog section about the Innovator's Paradox by Scott Anthony. He defines the Innovator's Paradox as this:

"When you don't need the growth, you act in ways that lead to you not getting the growth you will need. And when you do need the growth, you can't act in ways that deliver it."

I encourage you to read the article but the gist is this:

• When companies are in a period of high growth and resources are ample they should be looking for the next growth opportunities but they don't do it effectively. Their activities lack discipline; wasteful spending and overpriced acquisitions occur.
• When a companies business matures and growth slows done, there are little resources available for growth initiatives. The acute need for growth pulls them to large established markets that rarely pay off how they thought they would. They often ignore disruptive technologies because their current markets are small; if they view the disruption as a threat they will respond, but the response will be rigid. If they view the disruption as an opportunity, they will be more flexible in the response, but starve it of funding (because they don't see it threatening their business).

I love one of Anthony's recommendations - That for every growth business, companies must recognize that the business size has a limit. Thus, they should plan accordingly in the early stages.

Article: The Innovator's Paradox by Scott Anthony

Processes are not enough to drive growth. There needs to a number of support mechanisms that ensure the processes flow properly. These are what I refer to as the platforms for growth. There are three main platforms: Strategic, Organization, and Networks. The Network platform ensures the necessary flow of subject matter information into and across the company to accelerate expertise in key strategic growth areas.

Networks should be thought of in two ways: Internal and External. Internal networks consist of internal, cross-functional subject matter experts. Internal networks are best organized by growth opportunities. For example if your company has identified the mobile space as a strategic opportunity for growth, experts should be identified to discuss the opportunities and challenges for your company in this space. Experts may already have the knowledge or be asked to become experts in the area. There should be cross-functional representation, so while you may not have a finance expert knowledgeable about the mobile industry, they should be asked to become the mobile finance expert for the company. A company could have many growth networks - as many as identified strategic opportunities.

The innovation team should be charged with ensuring the internal networks are engage. There should be virtual environments set up to drive knowledge sharing and discussion and in-person events to learn more about the area (possibly with speakers identified by the external networks).

External networks are inflows of subject matter expertise into the company. The identified growth opportunities dictate the external experts needed. The innovation team and member of the internal network should reach out to respective external experts. Efforts should be made to ensure to most current information on the growth opportunity is shared with the internal network including asking for regular presentations on current events and disseminating research. 

Networks are simple in concept, but they take a lot of work to ensure that they are actively engage. All too often networks are set up only to remain stagnant as members become distracted by the primary jobs. All participants should be granted time by their managers to participate, their participation should be part of their annual goals, and the virtual environment should make it easy for the members to stay up to date with the activity on the environment.

Processes are not enough to drive growth. There needs to a number of support mechanisms that ensure the processes flow properly. These are what I refer to as the platforms for growth. There are three main platforms: Strategic, Organization, and Networks. The Organization platform ensures that the required structure is in place to ensure the growth model operates efficiently.

First, all roles need to be defined and in place. An executive team must be ultimately accountable for the strategic direction of the program. A Innovation leadership team, comprised of senior executives, are responsible for executing the strategy. An Innovation team are the administrators of the program. They ensure communications and reporting go out as planned, projects have all the needed support, and oversee all model processes. If desired, the Innovation team can help with early opportunity research.

Second, governance of the program needs to be clearly defined. The executive team must create a program charter that set targets, defines boundaries of focus, and clarifies how program investments will be overseen. For example, Whirlpool has two governing bodies for their innovation program. One manages the program strategy and the other plans the innovation road map based on the strategy.

Third, available funding for the program needs to be defined. While it is great to define growth targets, it is meaningless if funds are not committed to achieving the them. Clear targets and investments help set expectations for return on investment. Some companies distinguish between sustaining and growth investments. Whirlpool sets a fixed % of revenue (or assets) for sustaining investments and funds growth based on the zero-based investment methodology.

Roles, governance, and funding provide the structure for the growth strategy model. Without them, I don't think any program will get very far. If you get into a situation where some executive asks you to lead a growth program, make sure you get that person to agree to the organizational platform. They should be the one defining the charter and serving on the executive team.

Processes are not enough to drive growth. There needs to a number of support mechanisms that ensure the processes flow properly. These are what I refer to as the platforms for growth. There are three main platforms: Strategic, Organization, and Networks. The Strategic platform ensures the necessary flow of information into, out, and across the company to ensure the best possible growth decisions are made.

First, there needs to be mechanisms to ensure organizational alignment of the growth strategy. A communication plan should define how critical information will be disseminated to the right people. This includes communicating the high level strategy to all employees, a clear strategy roadmap that will help the growth leaders understand the company's growth strategy over the next 3-5 years, and regular reports to growth leaders to help them understand recent decisions and their results. The top mission of alignment is to ensure the right information gets into the hands of the right people at the right time.

One good way to communicate alignment is a strategic planning session. For example, every 5 years Royal DSM conducts a strategic planning session that defines how much revenue will new product launches generate in 5 years, what new areas they plan to go into, and how their capabilities will change. Li & Fung do a similar exercise every 3 years. In between exercises, the companies review how they are performing against plan and make course corrections as necessary.

Second, a metric plan should be devised to translate the growth strategy into metric-trackable objectives and build a reporting plan around it. Starting with the defined growth strategy, identify the top level metrics that relate to each objective. For example, any strategy should have a clear new product revenue target - that is how much annual revenue in 3-5 years time will come from new products launched since today. From the top level metric, break it down into sub-metrics. For example to hit $200 million in revenue in 3 years time, a company would need 5 successful launches which implies 10 total launches which implies 20 projects started which implies 100 opportunities evaluated. All these represent targets to track. Now, you need to map how you will report on these metrics. Everyone does not need to see all metrics in a report. The CEO may only need to see the current annual revenue number and the forecast number expected by the target date, while pipeline statistic may only be of interest to innovation leaders.

Third, any strategic platform needs an inflow of competitor intelligence data. Competitive Intelligence programs should strive to know what competitors are doing and how they might respond to your strategies and tactics. Competitive Intelligence programs should know competitor's RPV - resources (assets and capabilities), processes (business models and competitive advantages), and values (vision and strategies). Understanding your competitors will help your people make the best decisions.

A growth strategy model needs a complete solution. If all pieces aren't swimming in the same direction, growth will have to fight through roadblocks and black holes. A process to launch new products without a defined strategy will struggle to focus their limited resources; without funding it can't get started; without human resources it will never launch. The model that I am presenting is focused on new product growth, but many of the processes and platforms will fit the other growth dimensions.

The growth model requires three platforms: Strategic, Organization, and Networks. The Strategic platform provides communication of the innovation strategy to the organization to ensure alignment, a system to collect and report key performance indicators (KPI) of the model, and a competitive intelligence program to provide actionable intelligence on the company's competitors. the Organization platform provides a governance system to manage the processes, funding to execute the projects, and a central team to administer the processes. The Networks platform connects internal experts in identified opportunity areas to discuss how to exploit the opportunity and external connectors to bring select external expertise to supplement the internal platforms.

Processes are divided into Strategy, Planning, Prioritization, and Execution processes. Strategy sets the direction of the growth model - selects the opportunity areas of focus and defines how to play in those areas. The Planning processes assess the company's core capabilities (and gaps) and identify the upcoming trends impacting the opportunity areas. Prioritization looks at each opportunity area, considers the company capabilities and industry trends to identify, evaluate, and prioritize the best opportunities in the area. The Execution refers to the creation and execution of projects designed to exploit the best opportunities.

At a high level, there are four roles required to execute the growth model. The RACI chart below will help you understand the responsibilities. An executive team (or a high level executive) who handles the strategy phases. Innovation Leaders are usually one or two committees of senior company managers who are tasked with executing the strategy defined by the executive team. An Innovation Team and Subject Matter Experts (SME's) help during the prioritization process. Lastly the Innovation Team and Project teams are charged with the executing the projects designed to exploit the best opportunities.

You may have noticed that each process and platform reinforce the others. That is why a holistic model is required. Take out any piece and the output quality is significantly reduced.

How does your company structure to grow?

At the strategic perspective, growth breaks down to revenue and profits. Certainly, it is risky to overemphasize revenue and profit when pursuing brand new opportunities, but at the end of the day you evaluate the success or failure of a growth program by revenue and EBIT growth.

Every business is different, but they all can be examined under two dimensions. First, their natural planning cycle length. Most businesses have a natural time frame for planning that is dictated by the rate of change in their industry. Common time frames are 3 or 5 years, but they could be shorter or longer. The second dimension is levers of potential growth. These are potential growth strategies like core product growth, new products, acquisitions, and expansion of core products into new verticals. There can be others as dictated by the business's industry, but those are the most common.

How can we use these dimensions to look at growth? Looking at our fictional company, Global Co., the graph below looks at how it has grown over its past planning cycle of 3 years. The ends of the graph shows Global's revenue in 2007 and 2010. The columns in between are the various levers of growth and show us how much each contributed to the revenue growth over that three year period. From the graph we can see that Global's 2010 revenue is $250 million greater than 2007's for a compound annual revenue growth rate (CAGR) of 10.1%. Of that $250 million increase, the majority of the increase came from core product growth ($135 million). $100 million came from new products launched in 2008, 2009 or 2010. Acquisitions and Vertical Expansions made minor contributions of $10 million and $5 million respectively. The percentages above the columns indicates the driver's CAGR since 2007 (due to how it is calculated the sum of the dimensions' CAGR will not equal the CAGR for 2010). 

Now a 10% CAGR over the past three years doesn't sound too bad, but we know better when we looked at their revenue trend graph. Drilling into the dimensions of growth we see that the majority of the growth comes from core products and new products. Global Co. should be concerned that Core product growth is only 5.3%. This tells us that the core is slowing to steady state; Global Co. will need to find growth in its new products, acquisitions or vertical expansion if it wants to maintain its strong growth. That $100 million from new products is a good start. Digging into the new product growth, we see from the graph below that the bulk of that revenue comes from 2008 launches. 2010 new product launches have also had a very successful year. The 2009 vintage appears to slightly under perform. 

Using this format, we can look forward at the type of growth Global Co. needs to meet their growth goals. Global Co.'s growth goals is to maintain a double digit growth rate. Setting the CAGR to 10% we can calculate how much revenue that would be in 2013, $1.331 billion. In other words to maintain that 10% growth rate, Global Co. will need to find $331 million in new revenue over 2010. Under the dimensions, most companies should be able to forecast what the core group of products in existence as of 2010 will grow over the next 3 years. For the rest of the dimensions, the strategic planning process should identify the planned initiatives and the revenue they are expected to generate by 2013. Add up the dimensions of growth to the 2010 revenues and compare to the 2013 target - that is your growth gap.

I expect most companies will be shocked to see a gap between their plans and their needs. This is natural because as companies get bigger, the revenue required for 10% revenue growth gets continually bigger. To grow 10% from 2010 to 2011, Global Co. needs $100 million new revenue. It only grew $50 million in 2009! The great thing about this analysis is that it is a reality check for companies. Once the growth aspirations and expectation assumptions are defined, real discussion can occur on how to achieve those goals. Without clear definition, growth is simply an abstract concept. At some point, companies that live in the abstract will begin to consistently miss their growth targets.

How's does your company look at their growth aspirations.

For the last 2 years I've had the opportunity to study best practices to drive innovation in the context of a large, multi-national organization. While I have been working on an Innovation team, when I look at at "innovation" in the context of a large organization, what we are really concerned with is revenue and EBIT growth. In a series of posts, I would like to layout a comprehensive model to drive growth in such an organization. First, I need to define what I mean by "Growth Strategy" and when is it needed.

Let's use an example of Global Co. - a fictional company. 2010 was a monumental year as they achieved $1 billion in revenues. However, Global Co. is facing a challenge typical of all successful companies. Global Co.'s revenue growth is plotted on the image below. You can see that they have grown from $400 million to $1 billion in six years, but there are clear signs that Global Co.'s business is maturing. Slowing revenue growth and compressing gross margins are clear signals of the maturing market. While this is happening Global Co. has been focused on becoming more operationally efficient, so, in spite of shrinking gross margins, EBIT margins are increasing. This is a common situation - a company executing an operational efficient strategy facing the slowing growth of a maturing market. 

Global Co. needs a growth model. I say a model because a piece-meal approach won't work. A model brings strategy, structure, processes, and resources to address the problem in a comprehensive manner. This series will layout what I, based on my research and work experience, believe is needed in such a model to help re-energize Global Co.'s growth.

I repeatedly see people protecting "ideas' to the nth degree of paranoia. Even comments such as we don't want our own employees to see ideas of other employees because they may steal them! My answer to that sentiment is simple. Follow the conversation:

• Them: "We don't want to let our employees to ideas that other employees have submitted because they may steal them?"
• Me: "Help me understand, you are afraid an employee will take an idea that you are aware of, leave the company, start a new business from scratch, resource that business, build the solution, and penetrate the market faster than your well-established, well-funded company can?"
• Them: "Yes....err no...err wait"

Claim: To use a word broadly renders it meanless.

• Isn't the concept of private label simply being able to rapidly produce clones of other successful products?
• Instead of innovation, doesn't the author really mean "target" products in specific age segments

• In this case the innovation is agreeing to "adopt" someone else's new product (new green label PET bottles)

• Here I assume the author is referring to "new product development", but could refer to "process or business model changes".

• Here innovation happens after the invention; it is the "enhancing of the product".
• I wonder if  @tminahan was referring to this in the above quote?I don't think so.

• What do the schools need? It sounds like a "plan" to reduce drop outs

1. Evaluate the Health of the Core - By deriving Annual Revenue Growth and  Annual Revenue Growth from New Products, you can calculate Annual Revenue Growth from Core Products (I = G - H from last post's example). This number will give you an indication of the health of the business's core product line (often the products that brought you to the dance). There are 3 categories for Core Product health:
   • Growing (>20%) - The core is still in growth mode. Like most growing things, it needs support so focus efforts on enhancing the core products.
   • Hitting Steady State (0%-20%) - Core growth is maturing and heading to a steady state level (often between 0%-5%). Now is time to begin thinking about moving into product or market adjacencies to fuel new growth.
   • Declining (<0%) - Core has begun to shrink usually as the result of some exogenous shock. If not already underway, New Product development into product or market adjacenies should be a priority. If the shock is expected to be permanent other strategies may need to be considered such as harvest/exit strategy or refocusing the core.
2. Determine Your New Product Growth Needs - Once you understand and predict how your core will grow next year, you can set a New Product Innovation Strategy. If your core is:
   • Growing - You probably don't need much revenue growth from New Products. So focus on building out your core products, but you should be slowly doing research on potential adjacent markets to enter when growth slows.
   • Steady State - Two good options exist: 1) segment your customers; and 2) move into adjacent markets or products. Segmenting your customers allows you to identify which segments are growing and find new needs and uses for your product that you haven't considered. If your core is well rounded, another strategy is to identify new adjacent markets to offer your existing products or services; or identify new products/technologies to offer your existing customers (customer  segmenting helps identify this).
   • Decline - Not only does your New Product Growth need to be strong, it needs to offset the declines from your core. Note as mentioned above, if this is viewed to be a permanent decline you will need to determine a strategic response such as harvest/exit strategy or refocusing the core.