After Ralph Ohr’s excellent post on innovation and human capabilites, I’ve been giving some more thought to the three horizons model and how innovation is different within the horizons. The big takeaway from Ralph’s post for me was that we need to manage innovation differently accross the horizons. In other words don’t manage an H1 innovation project in the same way that you would manage innovation in an H3 business.

Today I want to think about the relationship between innovation and value creation in Horizon 1. To quote Ralph:

Horizon 1 represents the company’s core businesses today. It involves implementing innovations that improve your current operations. People most familiar with the needs of the existing customers and deployed technologies are in the best position to identify opportunities for incremental improvements.

So Horizon 1 strategy is about improving performance in the current business. This could be growing market share, driving down costs, or improving margin. Here, innovation needs to focus on improving the current business model. I’ve given some examples of this in a previous post but to make that point again, successful H1 innovators have a disciplined approach to business. In terms of the model set out by Treacy and Wiersma in their book The Discipline of Market Leaders, they make choices to lead on one of three dimensions and benchmark the other two as being fit for purpose, but not the focus of efforts to generate competitive advantage.

I teach all of my strategy courses for corporates with Kevin Hendry, who is a rare combination of excellent presenter, published academic and former vice-president of a Fortune 500 company. Kevin uses this slide to emhasize the importance of choice in where to focus efforts for improvement, but at the same time he reminds us to not ignore the other two dimensions.

OK, so now you’re probably thinking something like…. “Well, if we are innovative then we can be be excellent at everything and blow the competition away”. It’s an attractive thought until you think about the capabilities, people, systems and resources that are required to execute the three value disciplines. Kevin’s corporate experience gives him a keen insight into the difficulty of execution and it’s worth sharing his thoughts from a video we made from one of our courses in May last year.

In other words, think about the strategy map for the three disciplines. The people, systems and operations are quite different and trying to combine them all will result in a very internally conflicted organization and usually result in poor performance.

If the “market leaders choose” principle is true then the role of innovators in horizon 1 is to back up those choices. Clarity and discipline are keys to innovation success in Horizon 1.