Shaun Illingworth, co-founder, DFFRNT

Innovation labs must be relevant to the business.  While this may sound obvious, not being relevant, or being perceived as too far removed from the business is one of the key reasons why Innovation labs fail.  This doesn’t have to happen and the fix is pretty straightforward – balance your innovation portfolio.

A balanced innovation portfolio isn’t just a good idea; it’s a strategic imperative. It ensures continuous innovation by harmonizing immediate needs with long-term aspirations, and ensures your innovation lab is relevant today and tomorrow. By diversifying investments across horizons or tiers, companies can pursue vision strategies while also contributing to nearer term business wins. This approach also mitigates risk; stable income from Horizon 1 initiatives helps absorb the impact if a high-risk Horizon 3 venture doesn’t pan out.

A balanced framework optimizes resource allocation, providing a structured way to distribute capital, talent, and time effectively, aligning resources with strategic objectives and potential returns. This prevents both overextension on speculative ventures that are years from business readiness and underfunding of critical core improvements beyond maintenance efforts. Ultimately, a balanced portfolio fosters strategic clarity, ensuring that all innovation projects contribute meaningfully to overarching organizational goals, and prepare the company for the future.

Achieving a balanced portfolio requires a structured approach. One widely cited guideline for resource allocation is the 70-20-10 Rule:

• 70% of resources allocated to Core Innovations (Horizon 1) for sustained profitability.
• 20% to Adjacent Innovations (Horizon 2) for new revenue streams.
• 10% to Transformational Innovations (Horizon 3) for future market leadership.

“Balancing your innovation portfolio keeps you focused on the future while remaining relevant to the business.”

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While this rule provides a useful compass, it’s not a rigid formula; companies must adapt it based on their industry, company profile, and risk tolerance. The underlying principle of diversification is the key takeaway.

Balancing your innovation portfolio keeps you focused on the future while remaining relevant to the business.  

It is important to note that work on each horizon is different.  The team, the activities, the resource needs and the deliverables will vary greatly across horizons.  Multi-disciplinary teams are important and an innovation culture is essential.

Numerous leading companies exemplify effective innovation portfolio balancing:

• Google: Continuously optimizes its core search engine and Android OS (Horizon 1). It expands related revenue streams like YouTube and Google Cloud (Horizon 2). For the long term, Google invests in “moonshot” projects such as self-driving cars (Waymo) and life sciences (Verily) (Horizon 3).
• Amazon: Optimizes its e-commerce operations (Horizon 1). It leveraged internal infrastructure to launch Amazon Web Services (AWS) and expanded into logistics (Horizon 2). Amazon’s pursuit of new business models demonstrates strong Horizon 3 thinking aimed at long-term market disruption.
• Uber: Improves its ride-hailing business (Horizon 1). It expands to new cities and develops Uber Eats and Uber Freight (Horizon 2). Uber invests significantly in autonomous vehicles (Horizon 3).
• Tesla: Optimizes EV manufacturing and sales (Horizon 1). It expands with new vehicle models and charging infrastructure (Horizon 2). Tesla heavily invests in self-driving technology and robotaxis (Horizon 3).

And for those thinking this is new, here’s one from the history books: Nortel, a once telecommunications equipment giant, maintained a world class innovation lab (Kudos JT!) that researched and designed solutions across a three tier model that explored a range of near and distant business opportunities from wearables, smartphones, ecommerce, telepresence and telehealth – to name just a few that I was privileged to have worked on!

Balancing an innovation portfolio across different horizons is not merely a strategic option but a fundamental necessity for organizations of all types.  Enterprises need to maintain a competitive advantage and grow the business. Governments need to both improve and reimagine service delivery to meet the needs of an increasingly complex society. 

This approach ensures businesses and governments can effectively meet immediate demands, explore new opportunities, and proactively prepare for future disruptions. It prevents stagnation, fosters resilience, and ensures long-term viability.

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A checklist for government departments and agencies planning or auditing their innovation initiatives