If you’ve ever had the experience of watching a group of junior high kids (ages 10-14) in a basketball camp, you’ll notice that a very curious thing happens on the first day.
When you roll the balls out on the floor and allow for some unstructured warm-up time, the kids automatically congregate into two groups:
- The first group will shoot layups: just a couple of steps forward and into the basket. Low risk, high success.
- The second group will congregate a long way from the basket – usually past the three-point line all the way to half court. Ridiculous risk, with occasional success, which brings a huge celebration.
Why does this happen? For children, middle school is the time when self concept is at its lowest and the warmth and unconditional acceptance of family is being exchanged for the affirmation of classmates and teammates. By clustering into these two groups, ego is being preserved, and in the case of the half court bomb that works, some bragging rights can be gained. Since no one expects success, when it does occur, it is assumed to be pure chance and therefore non-threatening to the group as a whole.
Of course when we grow up this is no longer an issue…right?
As I work with the portfolio of innovation in mid-sized firms, I see a variant of this same thing happen. Many really solid companies have a core market, which represents a product or service that we have launched before. If we only follow the stage gate process, there is a high probability of a non-embarrassing outcome. In my Growth Zone model, we call this Quadrant I work. When the market has room and capacity to accept more products, this is a fine strategy and all is well.
I can also count on finding some half court shots, or in Growth Zone terminology, some Quadrant IV programs. These are typically very risky programs with both the customer need and the product or service need being invented at the same time. What is interesting, is these are usually assumed to be the hedge against Quadrant I work – the Hail Mary that creates balance with the low-risk programs. The truth is that the low-hit rate of these efforts makes them more like buying a lottery ticket than investing in innovation, and unfortunately the great learning that can be done by layering skills just doesn’t happen.
The fix for our junior high basketball team and a company’s innovation portfolio is surprisingly similar:
By introducing some moderate risk and moderate reward work, the return on investment skyrockets, and both our youngsters and our firms begin to have outsized success.
To illustrate this, let’s draw some specific analogies between our budding basketball stars and the participants on innovation teams:
- Building on some fundamental skills. When our junior team is able to dribble the ball without losing it, they can suddenly get mobile and introduce the outside three-point shot, which opens up a world of possibility. The first thing they do is start shooting the ball from a few feet away – making themselves much harder to guard. When working with firms, I encourage them to build on either a product/service competence or customer/market competence for the purpose of doing low-risk experiments that allow them to test new approaches within a familiar area. By holding either the customer/market or product/service constant, you greatly increase your chance of success and substantially reduce the cost of experimentation.
- Becoming unpredictable. When our early-stage basketball players learn to do a good jump shot or learn to drive to the hoop, a whole new world opens up for them. Suddenly, they are in charge and able to use their skills to outmaneuver a defender who is half a step behind. Business model innovation works the same way when practiced by the skillful firm. By exploiting a key intrinsic skill or insight, you get a step ahead of your market and find a way to score – even in the face of very good competition.
- Shooting outside. When our young players develop comfort in their shot and learn to follow through, many of them learn to take the outside shot successfully – this pulls the defense away from the basket and opens up the lane for quick passes and layups. When firms have confidence in their innovation capability, their brands become known, and numerous opportunities come to them.
How do you know if you have this issue in your portfolio? The path to this issue is relatively slow and deceptively easy to creep into, but your profit pattern will tell the story. If you have declining gross margins, and every new product or service released is having difficulty returning its invested capital, you have this issue.
The most insidious case of this issue is pseudo growth inside a firm with a dominant product or market position. The firm feels like it’s vital, with lots of activity, but when you look at the measurements for the growth portfolio, you find that the cash is coming from the legacy services, and the new work is not carrying its weight. This happens in many firms – think SUVs for GMC, revenue at Google and the Apple iPhone.
It takes leadership to coach organizations out of their risk averse tendencies – it is not easy to step away from the crowd and practice a new and innovative strategy. Wise leaders know that in these thoughtful experiments, the real breakthroughs come. So, are you shooting layups or jump shots? I’d love to hear more about your experiences working through risk and reward questions at your firm. Please drop me an email or put a call on our calendars using this link.
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