The 70-20-10 innovation rule is a simple but powerful framework that can help organizations foster a culture of innovation and growth. The rule suggests that organizations should allocate their resources and efforts in three different ways:
- 70% of the resources and efforts should be dedicated to the core business activities, such as maintaining and improving the existing products or services that generate the most revenue and profit.
- 20% of the resources and efforts should be allocated to adjacent business activities, such as exploring new markets, customers, channels, or technologies related to the core business but offering new opportunities for growth and differentiation.
- 10% of the resources and efforts should be invested in transformational business activities, such as developing breakthrough innovations that create new value propositions, business models, or industries that can disrupt the status quo and generate exponential growth.
The purpose of the 70-20-10 innovation rule is to balance an organisation’s short-term and long-term goals and encourage experimentation and learning. By following this rule, organizations can:
- Optimize their core business and ensure its sustainability and competitiveness in the market.
- Expand their adjacent business and leverage their existing capabilities and assets to create new value for their customers and stakeholders.
- Innovate their transformational business and challenge themselves to think outside the box and discover new possibilities for the future.
The 70-20-10 innovation rule is not a rigid formula but a flexible guideline that can be adapted to different contexts and situations. The percentages may vary depending on the industry, market, strategy, and goals. However, the key principle is maintaining a portfolio of innovation initiatives covering all three domains: core, adjacent, and transformational.
Some examples of successful organizations that have applied the 70-20-10 innovation rule are:
- Google: The tech giant is known for its culture of innovation and experimentation. It follows the 70-20-10 rule by allocating 70% of its resources to its core products (such as search, ads, YouTube, Gmail), 20% to its adjacent products (such as Chrome, Maps, Android), and 10% to its transformational products (such as Google X, Waymo, Loon).
- Coca-Cola: The beverage company has adopted the 70-20-10 rule to diversify its portfolio and respond to changing consumer preferences. It allocates 70% of its resources to its core brands (such as Coca-Cola, Sprite, and Fanta), 20% to its adjacent brands (such as Minute Maid, Powerade, and Honest Tea), and 10% to its transformational brands (such as Innocent Smoothies, Fuze Tea, Fairlife Milk).
- Netflix: The streaming service has used the 70-20-10 rule to evolve from a DVD rental company to a global entertainment leader. It allocates 70% of its resources to its core business (such as licensing content from studios and networks), 20% to its adjacent business (such as producing original content and expanding to new markets), and 10% to its transformational business (such as experimenting with interactive content and artificial intelligence).
The 70-20-10 innovation rule is useful for any organization that wants to stay relevant and grow in a dynamic and uncertain environment. By applying this rule, organizations can optimize their current performance while preparing for the future.