The 70-20-10 innovation rule is a widely recognized model for allocating resources towards organisational innovation. It is designed to balance investment between incremental and disruptive innovation. The model suggests that organizations should allocate 70% of their innovation resources to improve existing products or processes, 20% to explore adjacent opportunities, and 10% to develop entirely new products or business models. This strategy allows businesses to continue innovating while maintaining their core operations.
While Charles Kettering, a well-known inventor and businessman, is often credited with popularizing this innovation model, the origins of the 70-20-10 rule are somewhat unclear. Nonetheless, Kettering was an early advocate of investing in research and development and was instrumental in driving innovation at General Motors during his time as the head of research there.
Many organizations have embraced the 70-20-10 rule to organise their innovation efforts. The model provides a framework for balancing short-term and long-term objectives, allowing businesses to invest in incremental improvements to their existing offerings while exploring new opportunities.
The first 70% of the 70-20-10 rule suggests that companies should invest in improving their existing products or processes. This type of innovation is commonly referred to as incremental innovation. It involves making small changes and improvements to existing products or services to enhance their functionality or performance. Incremental innovation can be seen in various industries, from automotive manufacturers who make small changes to their engines to increase fuel efficiency to software companies who release frequent updates to their products to improve user experience.
The second 20% of the 70-20-10 rule suggests that companies should invest in exploring adjacent opportunities. This type of innovation is commonly referred to as adjacent innovation. It involves expanding a company’s product or service offerings into related markets or verticals. For example, a company that produces pet food may expand their product line to include pet toys or grooming supplies. This innovation can help companies diversify their offerings while leveraging their existing knowledge and expertise.
The final 10% of the 70-20-10 rule suggests that companies should invest in developing entirely new products or business models. This type of innovation is commonly referred to as disruptive innovation. Disruptive innovation involves creating new products or services that fundamentally change the market, often by providing new or improved functionality at a lower cost. This type of innovation is often associated with startups, as they seek to disrupt established markets with new and innovative ideas.
While the 70-20-10 rule provides a useful framework for balancing investment in different types of innovation, it is important to note that there is no one-size-fits-all approach to innovation. Every organization is unique and must adapt its innovation strategy to fit its specific needs and goals. Additionally, innovation is not a one-time event but an ongoing process that requires continuous investment and attention.
The 70-20-10 rule can be seen in action in a variety of industries. For example, tech companies such as Google and Microsoft are known for investing heavily in research and development, with a focus on both incremental and disruptive innovation. Google’s search engine, for example, is a classic example of incremental innovation, as it has evolved over time to become more accurate and efficient. On the other hand, Google’s self-driving car project is an example of disruptive innovation, as it seeks to fundamentally change the transportation industry by replacing traditional cars with self-driving vehicles.
Another example of the 70-20-10 rule in action can be seen in the pharmaceutical industry. Pharmaceutical companies must balance investment in both incremental and disruptive innovation, as they seek to both improve existing drugs and develop new treatments for diseases. The development of a new drug is a lengthy and expensive process that requires significant investment in research and development. However, the potential rewards can be significant, as new drugs can provide life-saving treatments for patients and generate substantial revenue for the company.
One example of a company that successfully balanced investment in incremental and disruptive innovation is Novartis. The company’s cancer drug, Gleevec, is an example of incremental innovation, as it improved upon existing treatments for leukaemia. However, Novartis also invests heavily in disruptive innovation, focusing on gene therapy and other advanced technologies. The company’s acquisition of AveXis, a gene therapy company, is an example of this strategy in action.
The 70-20-10 rule can also be applied at the individual level to manage personal innovation. For example, individuals can allocate their time and resources towards improving their existing skills (70%), exploring adjacent skills or knowledge areas (20%), developing entirely new skills or pursuing new interests (10%). This approach can help individuals stay relevant and adaptable in a rapidly changing job market while also pursuing their personal passions and interests.
In conclusion, the 70-20-10 innovation rule provides a useful framework for balancing investment in different types of innovation, from incremental improvements to disruptive breakthroughs. While organizations have widely adopted the rule, it is important to remember that every organization is unique and must adapt its innovation strategy to fit its specific needs and goals. Nonetheless, the 70-20-10 rule serves as a reminder that innovation is not a one-size-fits-all approach but rather an ongoing process that requires continuous investment and attention.