Scott D. Anthony and Mark W. Johnson and Joe Sinfield

Companies have to treat different types of innovation opportunities differently. Companies routinely organize differently to solve fundamentally different problems, yet the area of growth is all too often lumped into one managerial process, governed by one set of metrics. An incremental improvement in an existing market has to be measured, monitored, and managed differently than a completely new strategy that might go into a non-existent market. Trying to pursue fundamentally different opportunities in the same way guarantees that one type of opportunity will be sub-optimized.

Generally speaking, new growth approaches must go through a more iterative development process where the focus is on identifying and addressing the key assumptions and risks behind success. The metrics that guide a new growth idea in an early stage should not be the metrics like net present value or return on investment that are favored in the core business; rather, companies need to assess how well a concept fits a more qualitative pattern that typifies success in their target market.

Companies need not throw out their stage-gate processes. Rather, they can follow different paths for different types of innovations at the front end of the innovation process, where they formulate, screen, and shape ideas. As the iterative development process removes key risks from new opportunities, the new business can gradually transition to a company’s core launch capability. This transition marks the formalization of a new business that, if successful, will someday become part of the company’s core.

The exception to this transition occurs when the new venture follows a business model that the core business would view to be unattractive. The weight of historical evidence suggests that a great deal of organizational autonomy is necessary for companies to successfully create businesses that are disruptive to their core business.