Innovation Ambition Matrix

Core innovation activities, such as line extension, refreshing or improving the performance of existing products. These are fairly “safe bets,” for example a low-calorie version of an existing snack product.
Adjacent innovation activities, which take the company into new businesses (without venturing too far from the core), by incrementally adding new products and assets. P&G’s Swiffer product line is a good example here.
Transformational innovation activities, with the ambition to create truly new markets with breakthrough products and services. This is what my colleague Steve Wunker covers in his recent book “New Markets” so eloquently.
In reality, the innovation portfolio of each company in general covers all three of these activities. A good rule of thumb is that 70% of the investments are in level 1, 20% in level 2, and only 10% in level three. In terms of value creation potential, however, the ratios are inversed: Transformational innovations have the potential to generate 70% of the overall value from innovation activities. These numbers are based on research which the authors of the HBR article did in the industrial, technology and consumer goods sectors.

Key is to be clear about your ambition level, communicate how the various pieces of the portfolio fit into these growth horizons, and also manage the entire system appropriately (finding talented contributors with a diverse background, set up the right funding mechanisms, manage the pipeline tightly but not too ruthlessly, and define clear metrics).