The Innovation Kompas: A New Framework for Agile Growth

Traditional innovation strategies, like McKinsey’s Three Horizons, focus on maintaining the present, exploring near-term opportunities, and envisioning long-term breakthroughs. However, this traditional, time-based approach no longer aligns with today’s fast-paced and disruptive markets. Innovation is no longer constrained by time, and an organization’s core offerings are more vulnerable than ever to disruption by competitors leveraging emerging technologies and evolving customer expectations.

Why Continuous Innovation is Essential

Organizations that fail to continuously innovate risk losing market share to more adaptable competitors. Neglecting current offerings makes businesses especially susceptible to disruption. These examples from industry leaders demonstrate the risk of not innovating core offerings:

                  • Peloton experienced rapid growth but failed to diversify its offerings or adapt its pricing, allowing competitors like NordicTrack and iFit to capture market share with affordable and flexible options. Neglecting evolution (Evolve) and optimization (Optimize) weakened its position.

                  • Toyota, a pioneer in hybrid vehicles, was slow to embrace fully electric vehicles, prioritizing hybrids (Optimize) while competitors like Ford aggressively entered the EV market (Evolve) with offerings like the Mustang Mach-E.

                  • Cable TV providers such as Comcast and AT&T optimized their traditional services (Optimize) but failed to evolve with shifting consumer habits, missing opportunities to disrupt their own markets by investing in streaming-first platforms like Hulu (Disrupt).

On the other hand, some companies have excelled by innovating within their existing markets:

                  • Apple with its M1 chip revolutionized its hardware ecosystem.

                  • Netflix evolved from DVD rentals to streaming, and now original content.

                  • Spotify used data-driven playlists to redefine the music experience.

The Innovation Kompas: A Concurrent Model to Optimize, Evolve, and Disrupt

Success today requires constant balancing of these three focuses; “Optimize” for stability, “Evolve” for near-term growth, and “Disrupt” to safeguard the future. In the new model, disruptive innovation is always ongoing, focusing on new markets while also applying disruptive innovation to existing products and markets.

The Three Pillars of the Innovation Kompas

1.        Optimize: Focus on maximizing the performance of your existing products, services, and operations. This stage is about creating efficiency, driving sales, and strengthening core offerings to maintain a competitive edge.

Why It Matters: While innovation grabs headlines, it’s the optimization of your current business that provides the foundation for sustainable growth. Customers expect reliability and excellence in what you already offer. Neglecting optimization can undermine even the most ambitious innovations, as they rely on a stable foundation for success.

Example: Think of Apple’s continual improvements to its iPhone lineup. Each new model builds on the last, refining performance and solidifying its position in the market while contributing to the company’s financial stability.

2.        Evolve: Innovate the next generation of products and services. This focus involves improving upon what exists or entering adjacent markets to meet evolving customer needs. It’s about staying relevant and creating opportunities for incremental yet meaningful growth.

Why It Matters: Businesses that fail to innovate as they evolve risk stagnation. Customers’ expectations are dynamic, shaped by new technologies and cultural shifts. Incremental innovation ensures that you remain relevant and adaptable.

Example: Netflix moved beyond DVD rentals to streaming, and now into original content. Each step evolved the company’s offering, allowing it to stay ahead of competitors while maintaining its core focus on entertainment.

3.        Disrupt: To stay competitive, businesses must embrace disruption today to avoid irrelevance tomorrow. Organizations must pursue breakthrough innovations based on emerging technologies, shifts in consumer behavior, or anticipated market disruptions. These opportunities have highest potential to redefine industries or create entirely new ones, but also carry more risk. Some efforts may take years to materialize, others can have an immediate impact, and some may fail.

Why It Matters: Disruption is the lifeblood of long-term growth. It ensures your business isn’t blindsided by competitors or rendered obsolete by transformative market changes. However, disruption isn’t a “someday” focus—it must begin now to pay off later.

Example: Tesla’s early investment in electric vehicles and battery technology was a long-term bet, starting with the original Tesla Roadster. Using the resulting lessons learned, and brand awareness, Tesla is now shaping the future of the automotive industry.

Budgeting for Concurrent Growth

Balancing investment across the Three Pillars is critical for success. While exact percentages may vary by industry, a general guideline for R&D budget allocation can help organizations stay on track:

1.        Optimize – 60-70%

The majority of resources should focus on improving and maintaining your core offerings. This ensures financial stability and generates the revenue needed to fund innovation efforts.

2.        Evolve – 20-30%

A significant portion of the budget should go toward next-generation offerings. This includes exploring adjacent markets, developing incremental innovations, and addressing emerging customer needs.

3.        Disrupt – 10-20%

• While the smallest share of the budget, disruptive innovation requires consistent investment. Breakthrough ideas and technologies often need time to mature, and early-stage investment lays the groundwork for future growth.

Adjusting Investment based on Industry Context:

• High-tech industries might allocate more to disruption (e.g., 20-30%) because of rapid innovation cycles.

• More traditional sectors, like manufacturing, may focus more heavily on optimization while allocating less to disruption.

The Innovation Kompas: A Future-Focused Growth Strategy

The Innovation Kompas recognizes that today’s businesses must be agile, adaptive, and disruptive to thrive. Hyper-competitive, fast-moving markets demand that companies not only contend with traditional rivals but also address new threats emerging from adjacent industries, startups, and global competitors.

The Innovation Kompas framework drives disruptive innovation across all aspects of a business, fostering a cultural shift toward agility and a startup mindset. By balancing Optimize, Evolve, and Disrupt, organizations can protect their present, adapt to near-term opportunities, and build a foundation for long-term leadership.

Innovation isn’t just about future growth—it’s a critical defense for current market share. How is your organization striking this balance? Let’s discuss how the Innovation Kompas can help you lead in a changing world! Share your thoughts or reach out for more details.