A new product development process that works at lightning speed requires new ways of working plus new ways of innovating. This applies to both B2B and B2C businesses and across industries.
In this post we will cover how to:
- Cut your development cycle time and free up working capital
- Fill up your pipeline with new, vetted ideas
The fastest growing companies interpret innovation through multiple lenses. One of the most common approaches is called the ‘Horizons Model’. (Bahai, Coley, and White – 2000, Steve Blank – 2019).
What is the Horizon Model and why does it matter?
The Horizon Model is comprised of three phases. Horizon One (H1) represents your core business —a place of operational excellence and certainty. Horizon Two (H2) is your adjacent business arena where innovation is driven by new uses of existing technology and ideas. Horizon Three (H3) is your transformational business arena where totally new concepts are conceived and explored. Using the Horizon Model enables businesses to make appropriate investments in the development of new ideas and cascade them from conceptual to practical products systematically while mitigating risks.
Thinking about how to invest in the different horizons is like investing in the stock market.
When investing in the stock market you need to consider each stock’s volatility. If you only invested in ‘safe’ stocks, you would seldom grow more than the average expected of the market, and perhaps less. To grow, smart investors look for a mix of shares with various levels of potential, some of which may bring ‘safe’ returns and others that show promise to grow more than the norm in value.
In this way, H1 initiatives are like safer shares that have a higher certainty of bringing about a solid return – i.e. more certainty. However, to beat the market you also need to find other shares that will likely grow and bring higher returns, but they will have less certainty. These shares are like investing in H2 and H3 initiatives. To be successful organizations need to invest in, and take into consideration, the right mix of innovations and develop a portfolio to provide for long term growth potential.
Common Mistakes Using the Horizons Model
- Linking innovation horizons to time (e.g., H1 is now, H2 is 18 months from now, H3 is 5 years from now). Instead they should be interpreted as levels of uncertainty.
- Applying the same process to tackle different projects regardless of their characteristics and which horizon they are in.
- Expecting the same type of return from projects in different horizons.
- What happens is that both continuous improvement (H1: incremental and safe) and transformational (H2/3: radical and uncertain) change projects are pushed through the same funnel, creating a traffic jam. The response is often to prioritize projects, but this can compound the problem and often worsens the delays.
- Project leaders inflate H2/H3 innovation projects to show a high potential in order to ‘compete’. These guesses are rarely accurate, often inappropriate, and lead to poor decisions because the uncertainty is high.
- Since all projects are treated the same way, it takes longer to get projects through the funnel. H1 initiatives tend to be larger in scale, and can be pushed through a rigid stage-gate process. H2 and H3 on the other hand, often require a more agile, explorative and iterative process with different returns, different capabilities and different people on the projects.
- As a result, H2 and H3 become high risk projects and get jammed in an inappropriate stage gated process, and H1 projects get delayed.
How do you address these issues?
People think that ideation and an ideation platform are the keys to solving their growth issues. That isn’t the reality. While having a rich ideation capability and tools in place are important, they are only part of the solution. You also need an effective underlying framework and approach. In fact, it’s the key. A robust methodology enabled by an ideation platform is essential if you want to increase your speed to market.
It is important to think about how to create feedback loops in each stage of the innovation process and how to find and use the right funnels. A higher degree of uncertainty requires more iterations in H2 to H3. Iterating after each approval is not what decision makers may want, but they must learn to accept.
A 3 step process to speed up your time to market
Ideate – collect, reframe, and refine
Key findings for successful ideation are:
- It is non-linear (iterative with re-framing of original prompt).
- It refines the hypotheses by clustering many ideas and use components to refine the hypotheses
- It keeps ideators engaged (through good and bad, i.e. even when an idea is parked or discarded)
Use a non-linear ideation process to form ideas generated into ‘big ideas’. Start with either an internal or external campaign. Group ideas into clusters, consider themes and iterate them to build clusters. Develop big ideas by using these clusters to inform and grow the original ideas generated. Refining and reframing the ideas will make them sharper.
This fuzzy front-end consists of defined funnels for ideas to be collected (via pull or push). This must be defined and then iterated over the stage gates, or an equivalent decision point, as well as adding feedback loops in each stage.
Successful companies keep their ideators engaged regardless of the number of people involved. They have a process in place to gather a well-rounded, steady flow of ideas where everyone gets feedback. Providing feedback is essential to keeping people engaged and ensuring that the ideas keep flowing.
To build up their pipeline, top innovators may bucket their ideas into groups like: general, specific and market. They continue to ask ‘pipeline feeders’ for ideas and then divide the ideas based on prompts that move the ideas from general (areas of interest where they are always looking for ideas) into specific (a more narrow field where they can run prototypes on viability for customers) or market (ideas that are ready or close to being ready for development).
Top innovators use a number of different ‘pipeline feeders’ and continuously assess the ideas they receive to see if they are getting the return they want. Once they’ve bucketed the ideas, they scout for the right customers to try out the product in the H2 horizon.
Incubate – bucket projects based on high, medium and low uncertainty
Incubate big ideas that demonstrate potential. Top innovators have a systematic process for bucketing them by their level of uncertainty. Experiments are done to reduce uncertainty.
Successful innovators balance the time and money invested in H3 depending on the marketplace, but all leading innovators devote resources to H3 initiatives and have staffing in place to cultivate and oversee experiments as part of their overall innovation portfolio.
If a project is determined to have medium uncertainty they do prototyping and/or piloting. Low uncertainty is achieved when you have identified the action plan necessary to push the project forward and you have a very clear idea of what’s needed.
Testing often takes place in three tiers
Initiatives that fall within H2 suggest medium uncertainty. This requires thought, testing and perhaps piloting. Testing often takes place in three tiers—near testing, field testing and then market testing. The risk is scaled up as you progress through each of these tiers with near testing having less risk and market testing being higher risk.
It is important to collaborate with trusted stakeholders who have a good rapport with you to refine your hypothesis in near testing. That way it’s not the end of the world if the product has serious flaws—and a key objective is to uncover those flaws. Then refine your hypothesis to fully resemble your planned launch in market testing.
Finally, act like an anthropologist. Use observation skills and techniques to see what people are doing with your product and why. Collect the observations and feedback to be more certain that your product will hit the market running.
Intensify – institutionalize the project in your stage gate
You should know everything about the product by the end of this process. It’s about alignment – you have one story to tell. You have the correct action plans to drive the project through and you have a very clear idea of what’s needed in the different gates. One of the most important things is to have the right capabilities to support the execution at each stage gate.
Tips from top new product developers
At a system level:
Innovation horizons are based on uncertainty, not time. The goal is to mitigate uncertainty as you work through each of the horizons. H1 is low uncertainty; you know everything about the project. H3 is high uncertainty; you know very little about the project and the objective is to gain insights and learnings to obtain stable data, not ROI.
- A general rule of thumb is that H1 is 10% of the ideas, but 80% of the budget, H2 is 70% of the ideas and 15% of the budget, and H3 is 20% of the ideas with 5% of the budget.
- 80% of the investment is in H1 because of development and commercialization costs, often for large-scale efforts.
- Develop capabilities and align them according to your innovation strategy.
- Have the right capabilities in place at each stage gate.
At an organizational level:
- Make sure that everyone understands what and why you are doing things both from a management and employee point of view.
- Put in place the necessary resources to execute on what you want.
- Encourage a mindset to make things better.
It may look like you are adding steps, but in reality, this method optimizes the handling of the largest of your initiatives, focuses capabilities against the initiatives based on certainty and required actions, and ultimately speeds up the stage gate process on your business critical innovations. The result is that your success rate is higher and your time to market is significantly faster. All of the stages of the innovation process working together is what leads to the 30% effect.
To learn more about how to assess to improve your innovation process and speed up your time to market please check out Magnus Penker’s book, Assessing and Measuring Innovation available through amazon.