How the 70-20-10 rule of innovation applies in business12 min read

70 20 10 rule

There are several obstacles to overcome when it comes to innovation — the allocation of resources being the most common and prevalent among them.

For this reason, some of the world’s largest corporations have embraced the 70–20–10 model as a rule of innovation.

Interestingly, even Google uses this guideline in handling innovation investments.

In this article, you will learn what this concept is and how you can apply it to your organization.

Let’s start.

What is the 70-20-10 rule innovation?

Commonly referred to as “the rule of innovation,” 70–20–10 is more of a guideline that includes making adjustments to ratios of resources based on the profile and demands of your firm.

This is due to the fact that progress or success in innovation varies for every organization, considering both its internal and external influences.

Using the 70–20–10 concept across the board boosts innovation efforts. In this concept, the firm allocates 70% of its resources and human capital for its primary operations and initiatives, 20% for new advancements, and 10% for novel concepts with potential.

Another way to implement the 70–20–10 balance is to spread organizational resources between all types of efforts – core, adjacent, and transformational.

Types of innovation initiatives

1. Core

To differentiate these activities, the incremental upgrades to current goods and services that organizations typically dedicate the majority of their resources to are referred to as core innovation efforts.

Based on the 70-20-10 innovation model, your company should devote around 70% of its time and resources to upgrading current products. These are often less expensive and more suited to your existing client base and work procedures.

A case in point is when Apple invests most of its resources upon enhancing its products rather than creating a whole new product line for other audience types.

2. Adjacent

On the other hand, existing items that are moved to new markets, such as the case of geographical expansions, are examples of adjacent innovations. Typically, these projects are built on existing skills that are stretched to new heights.

Adjacent initiatives are identical to the projects that you have now, but only in a different market. At some point, regardless of how great your company, service, or product is, you will need to adjust and modify a few aspects just to satisfy your customers’ demands.

Investing in this kind of initiative allows you to manage and drive these activities to success.  As such, adjacent activities happen when you target a new geographic location, an entirely new market, or when you expand your current product line with other related items.

3. Transformational

Lastly, new products, services, ideas, or even business models that cater to a whole new market are all examples of transformational initiatives. These are the most difficult to accomplish, and these innovations are generally those that are considered breakthroughs in the industry.

Even though transformational projects are only given 10% of the total resources, they usually account for about 70% of the company’s total revenue. Consequently, businesses that use this innovation framework outperform their competition.

Because transformative and creative ventures are hazardous, resources allocated to them are capped at 10%. When they work, however, the ROI may be used to support these unsuccessful ideas repeatedly.

By the way, if you’re interested in innovation topics, feel free to join us on regular innovation webinar sessions. It’s completely free and you would hear directly from our founder and CEO, Steven Kop.

What are the benefits of using the 70-20-10 innovation rule?

As per Google’s then CEO, Eric Schmidt, the company has effectively employed the 70:20:10 rule for innovation. He claims that it is the most effective approach for stimulating staff creativity.

More crucially, the 70:20:10 approach promotes a risk-taking culture. It encourages possibilities and goes beyond traditional reasoning.

This motivating environment supports primary business activities while also enabling the application of fresh ideas and the creation of bold aspirations that can eventually turn into enormous victories for the company.

With all of these advantages aside, using the 70-20-10 innovation rule provides three major benefits:

1. It develops an innovative atmosphere within the workplace.

Innovative firms dedicate a larger amount of resources to new projects and concepts that allow breakthrough advances.

As a manager, you have the power (and the obligation) to motivate and support creative behavior in your staff by equipping them with the necessary skills to carry innovation out.

Leaders must consistently express their innovation objectives in the clearest way possible.  Without a proper innovation mechanism in place, certain issues may arise and hinder innovation goals.

Hence, when you go beyond your primary business and begin investing in other areas, you must first go through a definite process.

With the 70–20–10 rule, you can begin to make significant changes in how your company approaches innovation. You’ll also develop the attitude of expressing your aims and desired outcomes, which provides a forum for addressing the goals of the innovation portfolio.

2. It organizes the company’s innovation procedures.

Some businesses claim to be experts at managing innovation in all forms but are highly disorganized at carrying out innovation activities — thereby lacking a comprehensive perspective of every innovation project their company has executed.

In this sense, innovation must be viewed in its entirety instead of a portfolio to manage and control.

Achieving this necessitates a framework for prioritization and proper allocation of resources.  The 70–20–10 rule provides companies an extensive opportunity to become more disciplined in their operations.

As such, leaders can’t invest across all three types of innovation activities because of their inherent biases. Existing firms that are successful in their primary business may not see the value in bringing new concepts to life.

When this happens, the company will suffer a negative hit in terms of long-term viability.  Conversely, such businesses should explore applying the 70–20–10 strategy to determine how to deploy funds and resources to new sectors, resulting in extensive success.

For this reason, innovation leaders are directed towards spending budgets and resources in areas they may not have previously considered.

3. It handles the innovation portfolio.

Missed and overlooked concepts might come to light and eventually become assets with the 70-20-10 rule. As this innovation guideline includes maintaining a balance of investments in different initiatives, you, in turn, get to foster potential development.

In addition, it becomes easier for innovation teams to develop more solid projections when there are several initiatives to evaluate.

Hence, you should assess the potential of every innovation concept and group developing ideas under the same category. You can clarify and elaborate vague ideas with the rest of the team to decrease innovation risks early in the process like you handle innovation portfolios.

The easiest way to do this is by establishing innovation KPIs. These are specific statistics that measure an organization’s innovation success in terms of performance parameters such as revenue gained, profit margin, and a whole lot more.

For a business to survive, innovation is a critical process to implement. This procedure involves the utilization of business resources, so organizations must measure it regularly to keep track of improvements and other relevant forms of progress.

How does the 70-20-10 rule of innovation apply in practice?

A company’s success may be influenced by striking a balance between short-term activities and long-term ventures. For this reason, businesses must manage innovation strategically and aim for a sustainable ratio that will result in a higher return on investment.

Medium businesses with consistent revenue that intend to preserve their current stand in the market should concentrate on carrying out their core activities and avoid the challenges associated with transformational initiatives.

But this strategy is only a temporary fix. It would reflect the company’s current level of innovation and create a long-term impact on its holistic performance.

For this reason, innovation leaders must adjust the ratio and reduce the difference between the resources and other aspects of different innovation initiatives whenever they proceed to the next level.

Thus, managers must aim for a good balance that combines all three degrees of innovation — an activity that is quite difficult to do.

Interestingly, a study focused on the return of innovation showed that the 70–20–10 rule produces an inverse effect on returns.

Meaning, core activities that take 70% of your resources provide a 10% return. Adjacent innovations that take 20% generate an equal 20% return, and transformative innovations that only take 10% of your overall resources generate 70%.

How to implement the 70-20-10 rule of innovation?

Applying the 70–20–10 concept is ideal, but it might not be the perfect fit for every company, considering that certain aspects among organizations might differ at some point.

Because of this, it is critical to decide how and where to devote your resources while pursuing innovation. But, if you’re interested in utilizing the 70-20-10, here’s how you can get started:

  • Examine your existing circumstances. Study the innovation life cycle and determine what stage you are in.
  • Identify the objectives you wish to accomplish and what activities you are most likely to pursue.
  • Create a strategy. Remember to include the 70-20-10 guideline in your objectives and priorities.
  • Establish a clear and practical plan for achieving it. Review the previous steps and think about them when you determine the methods you’d like to include upon reaching your innovation goals.
  • Execute your plan and scale it up. Once you begin to see your desired outcomes, scale the process up. Note that this is a crucial phase in implementing the innovation process.
  • Convey the necessary modifications. Verify that everyone has a clear understanding of what you want to happen to guarantee their dedication and engagement.
  • Evaluate, adjust, and iterate as needed.

Go through the following steps along with your team. Give it enough time, and don’t rush into anything to avoid mistakes. Constantly check for progress and insert changes whenever necessary.

You can also develop your own allocation rule if you think it works better for your business.

Managing innovation frequently entails handling a lot of initiatives at the same time. Attempting to centralize it does not often end well for organizations, so entrepreneurs must disseminate it across the company for innovation to succeed.

Once this happens, you may create a strategy concerning the allocation of your resources —  and the 70–20–10 model is a good place to start. However, this concept isn’t for everyone. But it’s still a useful tool for the implementation and management of innovation activities inside the business.

The 70–20–10 concept is a great way to start innovation management. If you want to know more, you can also download our innovation ebook here for free. It expounds more on how to implement the innovation process in your company.

Published On: October 25th, 2021Categories: Innovation strategy

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