The 70:20:10 Rule of Innovation. Most of you have probably heard of it. A few of you may have even built your own resource allocation model around it.
The rule suggests earmarking 70 percent of your innovation budget toward your legacy business, 20 percent toward your growth business and 10 percent toward emerging business.
What many innovation leaders don’t realize is that this rule is based on Google’s resource allocation model, which makes sense if you’re an internet-age software company. But, if you’re leading innovation for a decades-old corporation, this rule may be sending you right into the arms of mediocrity.
Let me take a step back.
The 70:20:10 Rule of Innovation is rooted in learning theories, not innovation. Google adopted this theory for resource allocation, requesting that everyone spends 70 percent of their time on their core job, 20 percent as part of another team and 10 percent on something blue sky.
The rule has been recycled and applied to all resource allocation, including time and money, and is a rule that I’ve seen corporations of all levels of maturity adopt, sometimes to their detriment. The reason: it puts pre-internet companies in a position to be disrupted. That’s because transformation simply doesn’t happen if you’re focusing 70 percent of your time and money on maintaining your legacy business. A shift needs to occur to be competitive with startups and more progressive corporations.
A recent Accenture report on Governing Innovation cites two resource allocation models: the Mature Portfolio, which more or less aligns with the 70:20:10 rule, and the Balanced Portfolio, which cuts resource to the legacy business nearly in half.
Now, remember when I said the 70:20:10 Rule of Innovation is fine and dandy if you’re an internet-age software company but may not work if you’re a decades-old corporation? The decision on which of these two models to follow could quite literally make or break your business.
In the analysis, Accenture found companies that use the Mature Portfolio Resource Model generate more than half their revenue from legacy businesses today. You’re likely to see success with this model if you’re an internet-age company like Google or Salesforce or Nest. These companies still have a booming legacy business.
If you’re a decades-old corporation with a legacy business that has hit a plateau (or gone completely stale), I strongly recommend following what Accenture calls the Balanced Portfolio Resource Model. Under this model, the goal is to generate more than half of your revenue from growth and emerging businesses, relying less and less on your legacy business.
The Right Innovation Mix
The key to driving success under each of these models, Accenture notes, is to apply the right innovation mix -- incremental, adjacent or transformative -- to each of these three areas.
Incremental Innovations: Small improvements such as new features.
Adjacent Innovations: Next generation product or service offering.
Transformative Innovations: New offering to address unmet needs.
If you’re allocating resources according to the Mature Portfolio, your company’s focus should be on increasing adjacent or transformative innovations, ensuring that your booming legacy business keeps driving forward.
If you’re allocating resources according to the Balanced Portfolio, the focus should be on increasing both incremental and non-incremental innovation to maximize opportunities in growth and emerging businesses.
When I’m working with companies of any maturity level, I always advise them to consider where they want to go, not just where they are now, when developing their resource allocation strategy. The numbers can be sliced and diced a hundred different ways, but the most innovative companies I’ve worked with almost always lean into transformation to get to their expected outcomes.
Rachel Kuhr Conn is an entrepreneur, intrapreneur, researcher, world-traveler and lifelong academic dedicated to making true transformation easier for all. She founded Productable after perfecting her own innovation process for Mark Cuban’s portfolio of startups and is on a mission to help the world’s largest organizations drive fearless experimentation.
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