Research by Bansi Nagji and Geoff Tuff published in the Harvard Business Review provide some key insight into ‘The Delivery – Innovation Paradox’.
These researchers provide a useful framework to guide business leadership innovation investment allocation decisions to get the balance right. The framework uses three main innovation allocation categories: core, adjacent, and transformational investments. Selecting the best mix for the business achieves superior share price performance. The mix decision is relevant to ‘The Delivery – Innovation Paradox’ because core initiatives most closely align with a delivery focus that sustains profitability while adjacent and transformational initiatives align most closely with growth and competitiveness although arguably there are some underlying interrelationships.
The article provides some important guidelines to getting the right balance between delivery and innovation. Some of the key ones are:
1) Share price premiums of 10% to 20% can be realized with an innovation resource allocation mix of 70% to core, 20% to adjacent, and 10% to transformational although the authors caution this is based on an averaging of their observations;
2) The long-term cumulative return on innovation investment is inverse of the allocation mix given in 1);
3) Investment in transformational innovation yields blockbuster growth; and
4) Allocations should be optimized for the industry, competitive position, and a company’s stage of development.
The article emphasizes that execution is crucial to achieve intended results but the innovation allocation mix clarifies a key lever for business leadership decision-making.
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