Business

Use the 70-20-10 Rule to Innovate


Everything gets disrupted. Today, dozens of industries are in the midst of disruption. Uncertainty is ubiquitous. Electric vehicles are upending the automotive industry. Solar farms are rapidly replacing coal power plants. healthcare is transitioning to tele-health. And the list goes on.

Disruption occurs when new solutions reinvent stale business models. It’s easy to become enamored with disruptive innovation. Tesla, Coinbase, Shopify, and a host of other companies steal the innovation headlines. Many entrepreneurs and corporate innovators alike want to create the next big thing just like these icons. It makes sense.

Real Innovators Use Different Types of Innovation

In the early days of Netflix, I had a meeting with one of their executives at their corporate office in Silicon Valley. I asked him how Netflix approached innovation. He responded with a puzzled look on his face and said, “Netflix is innovation.”

The Netflix executive looked at the entire company as the definition of disruptive innovation itself. And it was. It upended Blockbuster and other video rental stores. Over time, however, Netflix applied different types of innovation to reinforce and extend its business model. It continually updated its recommendations algorithms to make the user experience better and better. It began producing its own branded content. Netflix was indeed a disruptive innovation, but once the company had established itself, it used other forms of innovation to differentiate itself and grow.

Innovation Requires a Portfolio Approach

Just over a decade ago, Google introduced a concept called the 70-20-10 rule. The company used the rule to help its employees understand how it was allocating resources and projects. Since that time, it’s become a concept used across many industries to help ensure a well-rounded focus on the different types of innovation important for both competing today and creating the solutions of tomorrow.

The 70-20-10 Rule divvies innovation up into three types. A healthy approach to innovation focuses on all three:

  • Core Innovation: small changes in existing products, services, and processes
  • Adjacent Innovation: new markets, product categories, or other major advancements to the core business
  • Disruptive Innovation: game-changers that disrupt industries or create entirely new market spaces

The 70-20-10 Rule says that 70% of people’s time and organizational resources should be spent on activities tied to advancing the core business in small ways through continuous improvement. 20% should be focused on adjacencies that advance the core business in significant ways through bigger investments. 10% should be allocated to exploring blue-sky disruptive opportunities.

Modify the Rule to Fit Your Game

I’ve worked with a lot of companies who try to copy the 70-20-10 rule. Many struggle because the allocations of 70-20-10 just don’t fit their business. Not everyone can or wants to operate like Google. My advice is to apply the rule, but modify the percentages as needed.

Some companies just aren’t disruptors. Their explicit strategy is to be a “fast follower.” While they might monitor the external environment to make sure they don’t get blindsided, they don’t want to allocate much time or effort to the R&D needed to create a disruptive innovation from scratch. So, they modify the rule to fit their business so it’s something like 80-18-2. They still embrace the three types of innovation, but in their own way that works for them.

Innovation is important no matter your company size or industry. Embrace all three types of innovation in your own way, and you’ll be positioned to compete today while concurrently creating your future.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.


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